Treasury yields remain higher after solid 2-year note auction

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Rates on one-year through 30-year Treasurys remained slightly higher on Monday after the first of two large government auctions.

What’s happening

  • The yield on the 2-year Treasury
    was 4.720%, up 3.3 basis points from 4.687% on Friday. Yields move in the opposite direction to prices.

  • The yield on the 10-year Treasury
    was 4.281%, up 2.3 basis points from a one-week low of 4.258% on Friday.

  • The yield on the 30-year Treasury
    was 4.404%, up 2.5 basis points from 4.379% on Friday. Friday’s level was the lowest for the 30-year rate since Feb. 12.

What’s driving markets

Treasury’s $63 billion auction of two-year notes produced a solid outcome, with indirect bidders being awarded 65.2% versus an average of 62.8%, according to strategist Vail Hartman of BMO Capital Markets. A second large auction, a $64 billion sale of five-year notes, is scheduled for 1 p.m. Eastern time.

U.S. data released earlier in the day showed that new-home sales came in below expectations at a seasonally adjusted rate of 661,000 in January, versus 651,000 in the prior month. Economists polled by the Wall Street Journal had expected to see a 680,000 rate.

Investors will now be looking ahead to Wednesday, when the first revision of fourth-quarter U.S. gross domestic product is set to be released, followed the next day by the personal-consumption expenditures price index for last month.

Analysts expect the core PCE price index, the Federal Reserve’s preferred inflation gauge, to come in at or above economists’ median estimate of 0.4% for January, given stronger-than-expected consumer-price index and producer-price index reports for the same month.

What strategists are saying

“The market remains expectant about the final impact on PCE prices following hot January CPI and PPI inflation,” said Oscar Munoz, chief U.S. macroeconomic strategist for TD Securities. In a note, Munoz wrote that “TD expects those robust increases to result in a solid 0.36% [month-over-month] jump for the core PCE. The PCE’s supercore likely also surged but by an even stronger 0.55%.”


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