Treasury yields rose early Wednesday, with the 10-year maturity hovering around the 3% level, as investors assessed the outlook for inflation and economic growth ahead of an eagerly awaited May consumer-price index reading due at the end of the week.
What yields are doing
- The yield on the 10-year Treasury note TMUBMUSD10Y, 3.010% was at 3.008%, up from 2.969% at 3 p.m. Eastern on Tuesday
- The 2-year Treasury note TMUBMUSD02Y, 2.745% yielded 2.749% versus 2.733% on Tuesday afternoon.
- The 30-year Treasury bond yield TMUBMUSD30Y, 3.154% was at 3.153%, up from 3.121% late Tuesday.
What’s driving the market
Treasury yields were back on the rise after pulling back Tuesday. The outlook for economic growth and inflation as the Federal Reserve tightens monetary policy remains front and center, with a Friday reading on the U.S. May consumer-price index expected to be the main event of the week.
Economists surveyed by The Wall Street Journal expect the year-over-year rate to slip to 8.2% from 8.3% in April. That would be down from a March reading of 8.5%, a more-than-40-year high, but still elevated. The core reading, which strips out food and energy costs, is seen edging down to 5.9% year-over-year versus 6.2% in April.
Fixings, or derivatives-like instruments related to the market for Treasury inflation-protected securities, or TIPS, imply that May’s year-over-year consumer-price index reading on Friday will come in at 8.5%. That’s above the 8.2% median forecast of economists polled by The Wall Street Journal and would match the 40-year high hit in March. Fixings traders also see inflation climbing to 8.6% in June and July, before hitting 8.8% in August and September. October’s reading is seen at 8%.
The European Central Bank meets Thursday, with investors expecting policy makers to lay the groundwork to end asset purchases next month and possibly begin lifting interest rates.
The Treasury Department will sell $33 billion in 10-year notes on Wednesday.
The U.S. economic calendar is light, with data on April wholesale inventories due at 10 a.m.
What analysts say
“Yield volatility remains the name of the game. 10Y UST yields fell back below the 3% handle yesterday, with no clear trigger coming from economic data or Fed remarks and with equity markets performing well,” said economists at UniCredit Bank, in a note.
“Auctions in the COVID-era have been aggressively bid for the most part, but cracks have formed in the past few months as the market has sold off,” said Thomas Simons, money-market economist at Jefferies, in a note, previewing the auction of 10-year notes. “Despite smaller auction sizes, 6 of the past 7 10-year auctions have tailed.”