Bond Report: Two-year Treasury yield hits four-week high after debt auction

U.S. Treasury prices slipped on Tuesday, pushing yields higher, as a key debt auction for short-dated notes weighed on trading for U.S. government paper.

What are Treasurys doing?

The 10-year Treasury note yield TMUBMUSD10Y, +0.80% rose 2.8 basis points to 2.058%, while the 2-year note rate TMUBMUSD02Y, -0.19% climbed 2.9 basis points to 1.904%, around its highest level in a month. The 30-year bond yield TMUBMUSD30Y, +0.16% was up 1.3 basis points to 2.533%. Bond prices move in the opposite direction of yields.

What’s driving Treasurys?

The Treasury Department sold $38 billion of 3-year notes, the first of three debt sales for the week. Market participants said the softness in the bond-market on Tuesday was due to bank trading desks making room for the fresh wave of supply during the so-called “concession” process, when broker-dealers bid yields higher in an effort to ensure a successful showing in a coming bond auction. Treasurys trading can be influenced by influxes of fresh debt.

Investors are looking for clues on the Federal Reserve’s plan for interest rates, with Fed Chairman Jerome Powell set to testify before the House and Senate on Wednesday and Thursday.

Since last Friday’s employment report, traders have reversed their bets on two quarter percentage point rate cuts in July. Still, many expect the central bank to carry out an “insurance” cut at the end of this month.

See: Could the Fed surprise the market by skipping a July rate cut? It’s not out of the question

What did market participants’ say?

“Markets continue to retrace their gains leading up to the employment report. The ‘leanings’ on the expectation that we would get a weaker than expected payrolls number have thrown traders off their game, at least for now,” wrote Kevin Giddis, head of fixed income at Raymond James.

“Today and the rest of this week we will give heavy weight to what the Fed says, because with a 50 basis point cut pretty much off the table, the market clings to a 25 basis point cut, but the Fed holds the cards, and for now, gets to play them as they wish,” said Giddis.

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