US Treasury yields were little changed for a second day on Thursday after hitting their highest levels since March as losses in Wall Street stocks offset an April jump in producer prices and a poorly received 30-year bond auction. The drop in US share prices reversed an earlier rise in Treasury yields stemming from news of a robust April rise in the producer price index. That report stoked the view that inflation is nearing the Federal Reserve's 2-percent goal and of a possible interest rate increase in June.
"The weakness in equities is keeping Treasury yields under wraps," said Gennadiy Goldberg, interest rates strategist at TD Securities in New York. With the PPI posting its biggest annual increase in five years, the April readings on Consumer Price Index and retail sales for release at 8:30 am (1230 GMT) on Friday may strengthen expectations for a June rate hike, if they reinforce the notion of a pickup in economic growth in the second quarter.
Moreover, the $62 billion supply from the US quarterly refunding and a hefty issuance corporate bonds, together with centrist Emmanuel Macron's presidential win in France last Sunday, have underpinned the rise in Treasury yields this week. Despite weak demand at the Treasuries auctions, modest buying emerged.
"Once you get through the refunding, it is not unusual to find a bid," said John Canavan, market strategist at Stone & McCarthy Research Associates in Princeton, New Jersey. In tight, choppy trading, benchmark 10-year Treasury yield was down 1 basis point at 2.408 percent, retreating from 2.423 percent, a near six-week peak reached following the April PPI report.
The two-year Treasury yield, which is sensitive to traders' view on Fed policy, hit a near eight-week peak at 1.367 percent before subsiding to 1.347 percent, down 1 basis point on the day. The three major US stock indexes sagged before paring some losses in late trading. The 2.5 percent annual jump in the PPI last month was the latest evidence domestic inflation is accelerating with a tightening domestic labor market and global economic backdrop. This supported market expectations the Fed would hike rates by quarter point to 1.00-1.25 percent at its June 13-14 policy meeting, analysts said. Interest rate futures implied traders saw an 85 percent chance of a rate increase next month compared with 83 percent on Wednesday, CME Group's FedWatch tool showed.
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