Treasuries See Further Upside Ahead Of Inflation Data

After moving higher over the course of the previous session, treasuries saw some further upside during trading on Tuesday.

Bond prices fluctuated early in the session but managed to remain mostly positive. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, fell by 2.6 basis points to 3.980 percent.

The increase by treasuries came as traders looked ahead to release of the Labor Department’s closely watched report on consumer price inflation on Wednesday.

Consumer prices are expected to increase by 0.3 percent in June after inching up by 0.1 percent in May, while core consumer prices, which exclude food and energy prices, are expected to rise by 0.3 percent in June after climbing by 0.4 percent in May.

The annual rate of growth by consumer prices is expected to slow to 3.1 percent June from 4.0 percent in May and the annual rate of core consumer price growth is expected to slip to 5.0 percent in June from 5.3 percent in May.

The consumer price data is likely to have a significant impact on the outlook for interest rates ahead of the next Federal Reserve meeting later this month.

Ahead of the inflation data, CME Group’s FedWatch Tool is indicating a 92.4 percent chance of another quarter point rate hike at the next Fed meeting later this month.

Meanwhile, the Treasury Department revealed this month’s auction of $40 billion worth of three-year notes attracted well above average demand.

The three-year note auction drew a high yield of 4.534 percent and a bid-to-cover ratio of 2.88, while the ten previous three-year note auctions had an average bid-to-cover ratio of 2.63.

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

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