Bond Report: U.S. Treasury yields rise before inflation data, debt auction

United States

U.S. Treasury yields inched higher on Wednesday before a consumer price index data for February and an auction for benchmark 10-year notes, both of which could influence trading in government paper.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, 1.565% rose 1.7 basis points to 1.561%, while the 2-year note rate TMUBMUSD02Y, 0.164% was down 0.2 basis point to 0.165%. The 30-year bond yield TMUBMUSD30Y, 2.269% gained 1.8 basis points to 2.277%.

What’s driving Treasurys?

A February reading of consumer prices at 8:30 a.m. ET could give an indication of the inflationary pressures bubbling in the economy. Economists expect it to show a 0.4% rise after a 0.3% increase in January. Headline CPI is seen picking up to 1.7% from 1.4% on an annual basis. Core CPI, which strips out volatile food and energy prices, is expected to rise 0.1% after a flat January reading.

Investors have fretted the full stimulus bill of $ 1.9 trillion rolling through Congress could contribute to the wave of consumer spending expected once the pandemic comes under control later this year. The OECD said this week that President Biden’s coronavirus aid package will add about one percentage point to global economic growth in 2021 and America’s growth rate was revised up to 6.5% from 3.2%. Morgan Stanley raised its 2021 forecast for U.S. economic growth to 7.3% from 6.5%, a pace unsurpassed since the Korean War boom.

With four days until supplemental unemployment benefits begin running out, the House will take the final vote on the coronavirus relief bill on Wednesday, clearing the path for the President to sign the stimulus package and send another round of economic aid to U.S. households, small businesses and municipal governments.

See: Investors blinded by over-optimism on vaccine rollout must see these risks, warns economist

Also drawing focus, the U.S. Treasury Department will auction off $ 38 billion of 10-year notes later in the afternoon. Demand for this batch of Treasurys are expected to be robust, but traders will look for signs of indigestion.

Two weeks ago, a poor 7-year note auction accelerated a bond-market selloff that took the 10-year note to 1.60% for the first time this year.

Read: Treasury auctions this week may add kindling to bond-market turbulence

What did market participants say?

The 10-year note sale “will be a key staging post in terms of determining whether the recent pull back in US yields represents a reassessment of fair value or a temporary interruption to an ongoing bearish move,” said analysts at Rabobank.