After failing to sustain an initial move to the upside, treasuries turned lower over the course of the trading session on Monday.
Bond prices pulled back off their early highs in morning trading and remained in the red throughout the afternoon. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, rose by 2.0 basis points at 3.765 percent.
The pullback by treasuries came as traders looked ahead to the Federal Reserve’s highly anticipated monetary policy announcement on Wednesday.
The Fed is widely expected to pause its recent interest rate increases but is also likely to reiterate its commitment to bringing inflation down to its 2 percent target.
CME Group’s FedWatch Tool is currently indicating a 76.9 percent chance the Fed will leave rates unchanged but a 57.8 percent chance of another quarter point rate hike next month.
The Fed’s accompanying statement is likely to have a significant impact on the outlook for rates along with some closely watched inflation data due to be released in the coming days.
Overall trading activity remained relatively subdued, however, with a lack of major U.S. economic data keeping some traders on the sidelines.
The Treasury Department announced the results of this month’s auctions of $40 billion worth of three-year notes and $32 billion worth of ten-year notes, revealing the sales attracted mixed demand.
While the three-year note auction attracted above average demand, the ten-year note auction attracted below average demand.
Trading on Tuesday is likely to be driven by reaction to a report on consumer price inflation, which could have a significant impact on the outlook for interest rates.
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