NEW YORK- US Treasury yields fell on Tuesday after a weak housing market report and strong two-year note auction, as investors awaited inflation data later this week.
Yields slightly extended declines after the National Association of Realtors said US existing home sales fell 5.4 percent in June to a seasonally adjusted annual rate of 3.89 million units, the lowest since December and below the 4 million estimate of economists polled by Reuters, as the median house price set another record high.
Housing prices have remained stubbornly high, fueling inflation. Investors are awaiting the gross domestic product report for the second quarter on Thursday and June personal consumption expenditures (PCE) data on Friday, which will provide insight on the Federal Reserve’s path for interest rates.
“The overriding pressures on the Treasury are the Fed, Treasury supply, and then growth and inflation expectations,” said Tom Hainlin, senior investment strategist at US Bank Wealth Management in Minneapolis.
“The expectation is that the PCE for June reinforces the idea that we’re decelerating and that perhaps that bump we saw was a temporary bump based on what they call base effects or relative to a year ago. If you saw a surprising bump (in the PCE number), that could get investors to reassess what multiple they pay on stocks or what they think Treasury yields should be.”
The US 10-year Treasury note yield fell 1.7 basis points to 4.243 percent . The 30-year bond yield shed 0.4 basis points to 4.474 percent .
The Fed is scheduled to hold its next policy meeting at the end of July. Markets are pricing in only a slight chance for a cut of at least 25 basis points (bps), while largely expecting the central bank to reduce rates at its September meeting, according to CME’s FedWatch Tool.
A closely watched part of the US Treasury yield curve measuring the gap between yields on two- and 10-year notes seen as an indicator of economic expectations, was at a negative 24.6 basis points.
Yields briefly fell further after an auction of $69 billion in two-year notes, described as strong by analysts, with a high yield of 4.434 percent and demand at 2.81 times the notes on sale.
The two-year US Treasury yield, which typically moves in step with rate expectations, declined 3.6 basis points to 4.487 percent .
More supply will come to the market this week as the Treasury auctions $70 billion in five-year notes on Wednesday and $44 billion in seven-year notes on Thursday.
The breakeven rate on five-year US Treasury Inflation-Protected Securities (TIPS) was last at 2.183 percent after closing at 2.194 percent on July 22.
The 10-year TIPS breakeven rate was last at 2.279 percent , indicating the market sees inflation averaging about 2.3 percent a year for the next decade.
