Higher Retail Sales, Budget Deficits And Treasury Yields

By Sunny Oh

The Treasury Department will sell $28 of 3-year notes and $21 billion of 10-year notes

Treasury yields held their ground on Monday as traders geared up for two batches of government debt auctions that could indicate appetite for increased issuance this year.

What are Treasurys doing?

The 10-year Treasury note yield was up by 0.5 basis point to 2.899%, according to Tradeweb. The 2-year note yield rose 0.8 basis point to 0.274%. The 30-year bond yield was mostly unchanged at 3.156%.

Debt price move in the opposite direction of yields.

What's driving Treasurys?

Bond traders are watching the sale of $28 billion of 3-year notes and $21 billion of 10-year notes. Widening budget deficits as a result of tax cuts and an increase to spending caps have conspired to push issuance to the highest in several years. Without higher interest rates to lure buyers, investors are unsure in the market will digest the deluge of supply.

Investors struggled to make sense of the jobs report last week after it showed muted wage gains but the largest number of jobs added since mid-2016. Nonetheless, traders are keeping their eye on inflation as the force set to roil markets this year, with a combination of fiscal stimulus, tariff concerns and a tightening labor market set to push inflationary pressures.

Such fears should keep investors quickly moving their attention to February's consumer-price index report on Tuesday. A higher than expected reading could push market participants to price in more than three hikes this year.

What did market participants say?

"In the week ahead, the Treasury market will have the competing influences of three inflation reports, three Treasury auctions, and the third retail sales release of the year...Core CPI is by far the most relevant from a macro perspective and will certainly add to the market's interpretation of the recent pickup in realized inflation. An acceleration of core pricing pressures will offer confirmation that this will finally be the year for inflation to return in earnest," said Ian Lyngen and Aaron Kohli, fixed-income strategists at BMO Capital Markets, in a note.

What other assets are on the move?

The German 10-year government bond yield fell 2.1 basis points to 0.630%. That came after the European Central Bank's Benoît Coeuré, a member of its rate-setting committee, said interest rates in the eurozone would stay at "very low levels," Reuters reported (https://www.reuters.com/article/us-ecb-policy-coeure/ecbs-coeure-sees-short-term-interest-rates-at-very-low-levels-idUSKCN1GO0NA).

Source : http://www.4-traders.com/news/BOND-REPORT-Treasury-Yields-Hold-Ground-Ahead-Of-Debt-Sales--26151321/

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