US Treasury prices dipped on Tuesday as a record-setting stock market drew investors away from bonds despite benign inflation data. Stock prices gave up some gains late in the session, allowing government debt to claw back some of its losses, but the inverse correlation between riskier stocks and safe-haven bonds held for much of session.
"The equity market strength is definitely distracting us from fixed-income," said Matthew Moore, economic strategist at Banc of America Securities. Indeed, benchmark 10-year notes were down 2/32 and yielding 4.71 percent, just below a one-month high and up from 4.70 percent on Monday. Two-year yields were steady at 4.75 percent.
So powerful was the allure of a runaway stock market that not even another round of fixed income friendly data was enough to prop up the market. US year-on-year core consumer inflation, excluding food and energy eased to 2.3 percent in April, according to the Labour Department.
The US housing sector also remained weak, with US homebuilder confidence sinking to a 15-year low in May, as lenders made it more difficult for borrowers to qualify for mortgages and order cancellations mounted, according to the National Association of Homebuilders. The pace of home sales slid in 33 states in the first quarter also, according to the National Association of Realtors.
"We are seeing nothing but sellers of bonds from overseas investors," said Andrew Brenner, a market strategist at MAN Financial. "They love equities." However, the New York Federal Reserve's regional manufacturing survey showed activity recovering for a second month in May after sinking to a two year low in March.
The New York data raised speculation that the Institute for Supply Management's national survey of industry executives, out early next month, could also show growing activity, possibly delaying an eventual interest rate cut from the Fed.