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U.S. Treasuries plunge ahead of 3-year, 10-year auctions; attention shifts to FOMC policy meet

The U.S. Treasuries plunged Monday, as investors wait to watch the country’s 3-year and 10-year Note auction, both scheduled to be held today by 17:00GMT. Focus remains on the country’s consumer price inflation (CPI) data for the month of May and the FOMC’s policy statement due on June 12 and 13 respectively.

The yield on the benchmark 10-year Treasuries jumped nearly 3 basis points to 2.96 percent, the super-long 30-year bond yields surged nearly 2-1/2 basis points to 3.10 percent and the yield on the short-term 2-year traded 2 basis points higher at 2.51 percent by 11:40GMT.

The key event in the US will obviously be the two-day FOMC meeting, which concludes on Wednesday. A further 25 bps rate hike, lifting the target fed funds range to 1.75-2.0 percent, is fully priced by the market. Most interest will center on the Fed’s updated projections and Chair Powell’s post-meeting press conference for clues on how policy is likely to evolve over the remainder of this year, Daiwa Capital Markets reported.

The recent economic data-flow would suggest that the Fed’s median forecasts for GDP and inflation this year will be revised up, while the median forecast for the unemployment rate will be revised down. However, given the deterioration in the external environment over the past quarter, the dot-plots for the fed funds rate at end-2018 might provide to be a touch more dovish than those published three months ago. 

Ahead of the FOMC meeting, tomorrow’s CPI report for May will be of significant interest to the markets – core CPI is likely to benefit from above-potential economic growth to post a rise of 0.2 percent m/m in line with the recent trend, while the headline index might rise 0.3 percent m/m on the back of higher fuel and food prices too – as will be elements of Wednesday’s PPI report for May. On Thursday, the advance retail sales report for May will cast light on how consumer spending is evolving in Q2. 

On Friday, the week will end with the IP report for May, the New York Fed’s manufacturing survey for June and the preliminary results of the University of Michigan’s consumer survey for June. Meanwhile, in the bond market, the US Treasury will auction a total of USD68 billion of 3-year and 10-year notes (today) and 30-year bonds (tomorrow), USD4 billion than the equivalent round two months ago.

Meanwhile, the S&P 500 Futures slipped 0.05 percent to 2,781.00 by 11:50GMT, while at 11:00GMT, the FxWirePro's Hourly Dollar Strength Index remained slightly bullish at 82.12 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex

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