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May 15, 2018

US Treasurys tick lower as investors wait for a new auction | CNBC

US Treasury's tick lower as investors wait for a new auction

Thomas Franck, Silvia Amaro

The yield on the benchmark 10-year Treasury note hit the highest level since 2011 after strong retail sales and manufacturing data.
The 10-year Treasury note, which moves inversely to price, was around 3.0557 percent early Tuesday morning, north of the 3.03 percent clinched in late April and the highest since 2011. The yield on the 30-year Treasury bond was also higher at 3.156 percent.
"I think it's important to get above 3 percent and show some upward momentum," said Michael Schumacher, director of rates strategy at Wells Fargo. "I'm not hung up on whether its 3.03 , 3.04, or 3.05 but it's a pretty sizeable move and that's important. " Schumacher said there seems to be lots of buyers lined up at 3 percent but not clear whether they are there for 3.04, or 3.05,
The Commerce Department said retail sales increased 0.3 percent in April. March's figure was revised up to a 0.8 percent gain. The spending gains were spread broadly across the retail industry, with big gains at furniture and clothing stores. The New York Empire State Index, a gauge of manufacturing in the region, came in at 20.1 for May, much better than the 15 level estimated by economists.
The rise in yields knocked stocks, which opened Tuesday lower.

Investors are betting the Federal Reserve will keep its aggressive stance even if it unnerves financial markets a bit. Traders for the first time Monday assigned a 51 percent chance of a fourth interest rate hike this year by the Fed, according to the CME. The strong data Tuesday will only increase the ranks of traders and investors with that belief.
Yields have been on the move higher this month ever since the Fed said on May 2nd that inflation was moving closer to its 2 percent target. The Fed next meets on June 12.
The latest uptick in rates also comes amid a rally in oil prices, a phenomenon that could have ripple effects throughout the economy and raise input costs across several sectors.
In oil markets, Brent crude traded at around $78.45 a barrel on Tuesday morning, up by 0.2 percent, while U.S. crude was around $70.93 a barrel, off by 0.08 percent. Oil prices held firm as market players saw signs of ongoing strong demand for the commodity.
An OPEC report Monday showed that oil inventories in Organization for Economic Co-operation and Development (OECD) nations dropped to 9 million barrels in March, above the five-year average.
The Federal Reserve, tasked with keeping inflation around 2 percent, considers pricing data when deciding whether to increase the benchmark federal funds rate. Despite a narrow CPI miss last week, personal consumption expenditures — the Fed's preferred inflation metric — is now near the central bank's target.
Rising inflation is a threat to Treasury prices because it erodes the purchasing power of their fixed payments, putting upward pressure on rates.
— With reporting by Patti Domm

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