US Treasury debt prices retreated on Tuesday as the market's downward technical momentum was accentuated by a bounce in consumer confidence to three-year highs and a sharp pullback in oil prices. Investors were also reluctant to buy bonds ahead of a two-day Federal Reserve meeting that many feared could bring more of the same dogged economic optimism market participants have come to expect from US central bankers.
Bond bulls were particularly worried that policy-makers would dash hopes of a near-term pause in interest rate hikes in their post-meeting statement, to be published on Thursday.
"We don't think they'll give any hint of a pause," said David Ging, fixed-income strategist at Credit Suisse First Boston. "The market's reaction will depend on just how hawkish they sound. For now, it's technical factors more than anything else."
Indeed, the market was caught up in a technical tug-of-war, with trading bound by key chart barriers that left benchmark yields in a range between 3.90 to 3.94 percent.
Tuesday's sell-off had taken benchmark 10-year notes 16/32 lower in price for a yield of 3.97 percent, compared with 3.91 percent on Monday.
A switch into equities, which managed to turn positive for the first time in a week, was also attracting investment dollars away from safe-haven Treasuries, traders said.
Volatile oil markets remained on traders' horizon, with the latest pullback in crude costs helping to deflate fixed-income markets.
Five-year notes lost 10/32 and were yielding 3.76 percent, up from 3.69 percent. The 30-year bond was off 28/32 for a yield of 4.25 percent, while two-year notes dipped 4/32 to yield 3.65 percent.
Still, traders noted that a barrel of crude above $58 a barrel was still likely to have a detrimental impact on US growth, and is therefore supportive of Treasuries.
Yet the reality of soaring energy costs has yet to catch up with American consumers, who remained chipper in June despite a renewed pick up in gasoline costs.
US consumer confidence jumped in June to its highest level since mid-2002, according to data from
The Conference Board. The index climbed to 105.8 in June from 103.1 in May, outpacing Wall Street forecasts for an increase to 104.0.
The percentage of respondents reporting jobs were hard to get fell to 22.6 from 24.1 - a positive signal for the labor market, but bad news for bonds.
"Weaker oil and better consumer confidence numbers are pressuring bonds and buoying stocks today," said Andrew Brenner, head of fixed-income at Investec US "We see very little incentive to buy in front of the Fed meeting."
Analysts have grown wary of paying too much attention to sentiment surveys in recent years since those figures have shown only a marginal correlation to actual spending patterns.