(Updated at 2:07 p.m. ET/1807 GMT)
By Chuck Mikolajczak
NEW YORK, June 11 (Reuters) – Benchmark U.S. 10-year Treasury yields declined on Tuesday following two straight sessions of gains, after an auction of the notes was well received as investors awaited key inflation data and a policy statement from the Federal Reserve.
Yields had risen over the prior two sessions, after a stronger-than-anticipated payrolls report last week dented market expectations for the timing and magnitude of any rate cuts from the central bank this year.
Initial declines in yields had begun to fade on Tuesday, until a $39 billion auction in 10-year notes that was viewed as strong by analysts, with a well above-average demand of 2.67 times the notes on sale and a high yield of 4.438%, more than two basis points lower than at the close of the auction.
The consumer price index (CPI) will be released on Wednesday morning, and will heavily shape the view for the Fed’s path of interest rates.
Later on Wednesday, the central bank is scheduled to release its policy statement after a two-day meeting and will also give its economic projections.
“Especially if you look at the longer-term Treasury yields like the 10-year, you’re in a pretty tight range between 4.1% and 4.75%,” said Tony Welch, chief investment officer at SignatureFD in Atlanta.
“Fair value for Treasuries is probably in and around there, when you consider where Fed policy is and where it’s likely to go, where global policy is and where it’s likely to go, and where inflation is and is likely to go.”
“You’ve actually seen a good amount of stability in the Treasury market here.”
The yield on the 10-year note fell 5.7 basis points to 4.412%, on track for its biggest daily decline in a week. Tuesday’s auction on the benchmark note stands in contrast to one of $58 billion in three-year notes on Monday which was described as weak by analysts.
The yield on the 30-year bond dropped 5.3 basis points to 4.5427%.
The Fed is widely expected to keep rates steady at this week’s meeting, while the probability of a cut of at least 25 basis points at the September meeting is 52.6%, according to CME’s FedWatch Tool.
That is down from 67% a week ago, as the strong jobs report raised some uncertainty about the timing of a rate cut.
A closely watched part of the U.S. Treasury yield curve measuring the gap between yields on two- and 10-year Treasury notes, seen as an indicator of economic expectations, was at a negative 42.8 basis points.
The U.S. Treasury Department will sell $22 billion in 30-year bonds on Thursday.
The two-year U.S. Treasury yield, which typically moves in step with interest rate expectations, declined 4.7 basis points to 4.838%.
The breakeven rate on five-year U.S. Treasury Inflation-Protected Securities (TIPS) was last at 2.278% after closing at 2.296% on June 10.
The 10-year TIPS breakeven rate was last at 2.294%, indicating the market sees inflation averaging about 2.3% a year for the next decade.
(Reporting by Chuck Mikolajczak; Editing by Jan Harvey and Tomasz Janowski)
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Published: 11 Jun 2024, 11:55 PM IST