Treasury yields on Monday headed higher, adding to a three-day streak of gains, ahead of the closely watched two-day Federal Reserve meeting set to begin Tuesday, which could be influential for investors in U.S. government paper.
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The yield on the two-year note, which is especially sensitive to changes in Fed policy, gained 2.1 basis points to 1.359%. Bond prices move inversely to yields; one basis point is one hundredth of a percentage point.
The yield for the 10-year note rose 1.4 basis points to 2.215%, while the 30-year bond added 1.5 basis points to 2.867%.
Treasury yields rose in anticipation of the Fed's expected quarter-point rate increase, but investors will be closely following the pace of rate increases thereafter, with the likelihood of a fifth rate hike since Dec. 2015 hovering below 50%, according to the Chicago Mercantile Exchange's data.
See: Here's what the Fed will signal when it hikes interest rates (http://www.marketwatch.com/story/heres-what-the-fed-will-signal-when-it-hikes-interest-rates-2017-06-12)
Investors will also look ahead to consumer price data on Wednesday as Fed policymakers had labeled tepid consumer price data in March (http://www.marketwatch.com/story/inflation-falls-for-first-time-in-13-months-cpi-shows-2017-04-14)and April (http://www.marketwatch.com/story/us-consumer-prices-rebound-in-april-2017-05-12) as "transitory" to set up for the June rate hike. Five-year breakeven forwards, the bond market's assessment of average inflation in the next half-decade, slumped from 2.23% in March to 1.87% at its most recent reading, the lowest in seven months.
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Analysts say the weaker-than-expected numbers have weakened the case for an accelerated pace of monetary-policy tightening. Moreover, they expressed concerns the Fed could stay ahead of the curve if the central bank insists on pushing for higher rates without an attendant recovery in inflation.
"If the slowdown in realized inflation doesn't in fact prove to be 'transitory,' the Fed will certainly have trouble adhering to its desired path toward normalization," said Ian Lyngen, head of U.S. rates strategy for BMO Capital Markets, in a note.
Yields dipped before rebounding around noon as an auction of three-year and 10-year notes fetched stronger bidding than expected. Sales of U.S. government paper can influence trading in the outstanding market.
"It seems that at least one large investor, or possibly more, is betting that the Fed is very close to being done with the normalization process, despite Fed guidance otherwise," said Thomas Simons, senior money market economist for Jefferies.
Elsewhere, the euroskeptic 5 Star Movement suffered a setback across Italian local elections, after having received the second-most votes in the 2013 general election. The municipal results helped to relieve some geopolitical concerns over the eurozone's viability much in the same way the loss of the far-right Marine Le Pen in the French presidential election did back in May.
"This party was the market's biggest fear whether an election is called early for this fall or continues as is next year. The political worries for the region entering the year have basically been neutered," said Peter Boockvar, chief market analyst for the Lindsey Group, in a note.
The 10-year Italian benchmark government bond experienced a relief rally, slipping 7.2 basis points, its lowest levels since January. Other European sovereign debt drew investors' money, with the 10-year German government bond, or the bund, falling 1.9 basis points to 0.246%.
The French 10-year government bond slipped 4.2 basis points on the back of a landslide victory for French President Emmanuel Macron's En Marche! party in the country's parliamentary elections, giving him the votes to push for cuts to corporate taxes and other pro-growth legislation.
(END) Dow Jones Newswires
June 12, 2017 17:53 ET (21:53 GMT)