Treasuries Extend Upward Trend Amid Easing Inflation Concerns

Treasuries showed a notable move to the upside during trading on Tuesday, extending the upward trend seen over the past few sessions.

Bond prices moved modestly higher in early trading and climbed more firmly into positive territory as the day progressed. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 4.4 basis points to 1.564 percent.

The continued advance by treasuries came as concerns about inflation and monetary policy tightening continued to ease following comments from several Federal Reserve Officials.

St. Louis Fed President James Bullard told Yahoo Finance in an exclusive interview that policymakers should not be too eager to pull back support yet as vaccinations bring the economy “closer and closer” to pre-pandemic form.

Other Fed officials Raphael Bostic and Lael Brainard also talked down inflation risks and described the recent demand-supply disruptions as transitory.

Treasuries saw further upside after the Treasury Department revealed this month’s auction of $60 billion worth of two-year notes attracted above average demand.

The two-year note auction drew a high yield of 0.152 percent and a bid-to-cover ratio of 2.74, while the ten previous two-year note auctions had an average bid-to-cover ratio of 2.51.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

On the U.S. economic front, the Commerce Department released a report showing a substantial decrease in new home sales in the month of April.

The report said new home sales slumped by 5.9 percent to an annual rate of 863,000 in April after jumping by 7.4 percent to a significantly downwardly revised rate of 917,000 in March.

Economists had expected new home sales to tumble by 7.0 percent to a rate of 950,000 from the 1.021 million originally reported for the previous month.

A separate report released by the Conference Board showed consumer confidence in the U.S. held steady in the month of May.

The Conference Board said its consumer confidence index edged down to 117.2 in May after climbing to a revised 117.5 in April.

Economists had expected the consumer confidence index to pull back to 119.5 from the 121.7 originally reported for the previous month.

A lack of major U.S. economic data may lead to light trading on Wednesday, although bond traders are likely to keep an eye on the results of the Treasury’s auction of $61 billion worth of five-year notes.

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