US Treasuries steady on subdued trade

The US Treasuries traded nearly flat on Tuesday as investors receive no more important data or events. Moreover, the future course in bond prices is likely to be ruled by the movements in the crude oil market, which jumped more than 1 percent and hit their highest in eight months. The yield on the benchmark 10-year Treasury note hovered at 1.725 percent mark and the yield on short-term Treasury note remained steady at 0.791 percent by 12:25 GMT.

The Federal Reserve Chair Janet Yellen said that if incoming data are consistent with labor market conditions strengthening and inflation making progress toward our 2 percent objective, further gradual increases in the federal funds rate are likely to be appropriate and most conducive to meeting and maintaining those objectives. Referring to the weaker than expected May employment report, Yellen noted that she sees good reasons to expect that the positive forces supporting employment growth and higher inflation will continue to outweigh the negative ones.

As a result, she expects the economic expansion to continue, with the labor market improving further and GDP growing moderately. This appears to be a solid attempt to prevent the May employment report from derailing efforts to prepare markets for a summer rate hike. With Lockhart and Bullard going a long way in talking down a June hike, but keeping open support for possibly one in July, we expect a good deal of support for normalization to resume, remembering that it is not about the incoming data itself but more how the Fed takes it into account.

A Reuters poll of primary dealers on the Fed taken after Friday's employment report find the firms' economists putting a median probability of 5 percent on a rate hike at next week's FOMC meeting and 34 percent at the July meeting. Their median midpoint for the Fed Funds rate at year-end is 0.63 percent (i.e. one 25 basis point hike).

In addition, the US bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Today, crude oil prices jumped more than 1 percent by hitting 2016 high, supported by the softer dollar and by falling Nigerian oil output after a spate of attacks on infrastructure. The International benchmark Brent futures rose 1.17 percent to $51.14 and West Texas Intermediate (WTI) jumped 1.05 percent to $50.21 by 12:25 GMT.

Markets now look ahead to a relatively lighter flow of data this week, largely highlighted by Michigan consumer sentiment on Friday. Additionally, markets receive 3-Year Note, 10-Year Note and 30-Year Bond auctions on Tuesday, Wednesday and Thursday, respectively.

Meanwhile, S&P 500 Futures rose 3.75 points to 2,112 by 12:25 GMT.