U.S. Government Bonds Tread Water Ahead of Auctions

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03/12/2018 | 04:15 pm

By Akane Otani

U.S. government bond prices inched higher Monday ahead of a series of Treasury Department auctions and key readings on inflation.

The yield on the benchmark 10-year U.S. Treasury note recently traded at 2.892%, according to Tradeweb, compared with 2.894% Friday.

Yields, which fall as bond prices rise, posted their biggest one-week advance since mid-February last week, pressured by a strong jobs report that helped U.S. stocks rally.

This week, bond investors' attention will turn to a series of Treasury Department auctions, including sales of the 6-month bill, 3-year note, 3-month bill and 10-year note later Monday. Tepid demand at the auctions could put additional pressure on the 10-year note, whose yield has crept back to near its highest level of the year in recent sessions.

"If the U.S. auctions performance is subpar, look for the 10-year yields to retest this year's high," said Tom di Galoma, managing director of rates trading at Seaport Global Securities.

Investors also will be keeping a close eye on a series of readings on inflation, including consumer prices on Tuesday and producer prices on Wednesday.

Economists surveyed by The Wall Street Journal expect the consumer-price index, which measures what Americans pay for everything including prescription medication and breakfast cereal, to increase by 0.2% in February, down from 0.5% in January.

The report on January prices, which caught many investors and analysts off guard, had sent the yield on the 10-year note jumping to a multiyear high as some worried that the data could pressure the Federal Reserve to pick up its pace of interest-rate increases.

The central bank has penciled in three interest-rate increases for the year. Some investors believe that number could shift to four: the market is pricing in a 32% chance of the Fed raising short-term interest rates four times by the end of the year, according to federal-funds futures tracked by CME Group, up from 16% one month ago.

A stronger-than-expected pickup in prices could renew selling pressure for Treasurys, analysts say.

Write to Akane Otani at akane.otani@wsj.com

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