Plus   Neg

Treasuries Close Roughly Flat Ahead Of Fed Announcement

After initially moving to the downside, treasuries recovered over the course of the trading day on Tuesday before closing nearly flat.

Bond prices moved roughly sideways going into the close. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, ended the day unchanged at 2.957 percent.

The roughly flat close by treasuries came as traders looked ahead to monetary policy announcements by the Federal Reserve and the European Central Bank.

The Fed is widely expected to raise interest rates by 25 basis points on Wednesday, while the ECB has indicated it will discuss ending its bond purchasing program at its meeting on Thursday.

Ahead of the Fed meeting, the Labor Department released a report showing another modest increase in consumer prices in the month of May.

The Labor Department said its consumer price index rose by 0.2 percent in May, matching the increase seen in April as well as economist estimates.

Excluding food and energy prices, core consumer prices still increased by 0.2 percent in May after inching up by 0.1 percent in April. The core price growth also matched expectations.

The annual rate of consumer price growth accelerated to 2.8 percent in May from 2.5 percent in April, reaching its highest level since February of 2012.

Core consumer price growth also edged up to a fifteen-year high of 2.2 percent in May from 2.1 percent in the previous month.

Michael Pearce, Senior U.S. Economist at Capital Economics, said the consumer price growth will keep the Federal Reserve on course to raise interest rates on Wednesday.

"We expect underlying inflation to trend gradually higher from here, which will prompt the Fed to hike rates twice in the second half of the year," Pearce said.

Meanwhile, traders largely shrugged off the historic summit between President Donald Trump and North Korean leader Kim Jong Un.

Following the meeting, Trump and Kim signed a joint statement pledging to work together to "build a lasting and stable peace regime on the Korean Peninsula."

The statement said Kim reaffirmed his firm and unwavering commitment to complete denuclearization of the Korean Peninsula, while Trump committed to provide security guarantees to North Korea.

The U.S. and North Korea also committed to hold follow-on negotiations led by the Secretary of State Mike Pompeo and a relevant high-level North Korean official.

After selling three-year and ten-year notes on Monday, the Treasury Department finished off this week's series of long-term securities auctions with the sale of $14 billion worth of thirty-year bonds, attracting average demand.

The thirty-year bond auction drew a high yield of 3.100 percent and a bid-to-cover ratio of 2.38, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.39.

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

While the Fed is widely expected to raise interest rates, trading on Wednesday may be impacted by reaction to the accompanying statement.

The announcement from the Fed is likely to overshadow the Labor Department's report on producer prices in the month of May.

For comments and feedback contact: editorial@rttnews.com

Market Analysis

Follow RTT