(Bloomberg) — Treasuries fell for a third day on Monday, paring last week’s rally in US bonds on signs of easing inflationary pressures.
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Longer-dated debt led the declines, with the 10-year yield hovering at about 4.44% at 12:06 p.m. in New York. A wave of selling in the futures market helped accelerate the slump, with 20,000 10-year note futures changing hands in a three-minute window around 8:20 a.m.
With no economic data to spur positioning on Monday, investors are instead focused on commentary from a swath of Federal Reserve speakers, and a packed slate of investment-grade issuance as companies look to borrow ahead of the upcoming holiday weekend.
A US inflation report last week helped fuel a third week of gains for the Treasuries market on expectations that easing price pressures will allow the Federal Reserve to lower interest rates twice this year.
“It looks like corporate issuance is heating up a bit this morning, which could be weighing on the market more broadly from a technical perspective,” said Zachary Griffiths, head of US investment grade and macro strategy at CreditSights. We’ve seen “some selling activity in the futures market amid a light economic calendar, but heavy slate of Fed speakers.”
Federal Reserve Vice Chair for Supervision Michael Barr said the central bank should hold interest rates steady, while Atlanta Fed President Raphael Bostic said the “steady state” for US interest rates will probably be higher going forward than in the recent past.
Fed Vice Chair Philip Jefferson said on Monday regarding the recent consumer price release that it was “important not to focus too much on just one data point,” and “it’s too early to know whether that is indicative of what is to come, but it is a good sign for us.”
Traders are currently pricing in about 40 basis points of cuts by the end of the year, with the first reduction fully priced in for November.
But there are signs of new bets against Treasuries being established in the futures market. Activity in two- and five-year note futures has jumped, consistent with new short positioning as traders push back on Fed rate-cut pricing.
Meanwhile, some 13 potential borrowers may look to tap the US investment-grade primary market Monday, according to an informal survey of debt underwriters. Companies are expected to sell between $25 billion to $30 billion of debt, with the issuance likely coming early in the week.
Following the data reports and movement in yields last week, strategists at JPMorgan Chase & Co. hold a “neutral” view on duration, with the firm’s economists seeing the first Fed rate cut coming in July.
“We continue to see the risk that the first cut comes later than our baseline forecast,” a team of JPMorgan strategists including Phoebe White wrote in a May 17 note. “In turn, this suggests it is still too early to add duration, as yields have tended to decline in the 3 to 5 months ahead of the first ease.”
(Updates rates throughout and adds strategist comment.)
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