Treasuries Come Under Pressure As Thirty-Year Bond Auctions Attracts Below Average Demand

After ending the previous session nearly unchanged, treasuries showed a notable move to the downside during trading on Tuesday.

Bond prices showed a lack of direction in morning trading before coming under pressure in the afternoon. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, climbed 5.2 basis points to 1.415 percent.

With the increase on the day, the ten-year yield continued to recover after ending last Thursday’s trading at its lowest closing level since February.

Treasuries came under pressure in afternoon trading after the Treasury Department revealed below average demand for this month’s auction of $24 billion worth of thirty-year bonds.

The thirty-year bond auction drew a high yield of 2.000 percent and a bid-to-cover ratio of 2.19, while the ten previous thirty-year bond auctions had an average bid-to-cover ratio of 2.33.

The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.

In U.S. economic news, the Labor Department released a report showing consumer prices in the U.S. saw the biggest monthly increase in thirteen years in the month of June.

The Labor Department said its consumer price index jumped by 0.9 percent in June after climbing by 0.6 percent in May. Economists had expected consumer prices to rise by 0.5 percent.

The bigger than expected increase in consumer prices reflected the biggest advance since prices surged up by 1.0 percent in June of 2008.

Excluding food and energy prices, core consumer prices still jumped by 0.9 percent in June following a 0.7 percent increase in May. Core prices were expected to rise by 0.4 percent.

The annual rate of consumer price growth accelerated to 5.4 percent in June from 5 percent in May, reaching the highest level since a matching spike in August of 2008.

Core consumer prices were up by 4.5 percent year-over-year in June, reflecting an acceleration from the 3.8 percent jump in May. Core prices saw the biggest annual increase since November of 1991.

“The surge in demand triggered by the easing of Corona-related restrictions is causing significant bottlenecks and price increases in parts of the economy,” said Dr. Christoph Balz, Senior Economist at Commerzbank. “Under these circumstances, the Fed’s tapering of its bond purchases is drawing closer.”

Congressional testimony from Federal Reserve Chari Jerome Powell is likely to attract attention on Wednesday along with the Fed’s Beige Book.

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