US Treasury debt prices turned lower on Monday as investors focused on the latest inflation data, Tuesday's Federal Reserve policy meeting, and upcoming supply. In late afternoon, short-lived gains in some blue chip stocks lured investors away from bonds, allowing Treasuries to dip into the minus column, where they remained even when blue chips again turned lower.
A higher-than-expected June core inflation reading weighed on prices of US government securities since inflation erodes the value of fixed-income securities. Meanwhile, traders warily awaited the results of Tuesday's Federal Reserve's policy setting meeting and cut prices ahead of huge supplies of long-dated securities that the government will auction later this week. The benchmark 10-year Treasury note's price, which moves inversely to its yield, traded down 3/32 for a yield of 3.95 percent, versus 3.94 percent late Friday.
Among the personal income, consumption and prices data released on Monday, traders focused on the inflation numbers, which were firm, said Josh Stiles bond strategist and managing director with IDEAglobal in New York. The US core PCE price index for June rose 0.3 percent,above economists' forecast for a rise of 0.2 percent. The core year-over-year rate was 2.3 percent, above the Fed's presumed comfort zone.
The prospect of this week's issuance also weighed on US government bond prices, traders said, with the Treasury Department planning to sell $17 billion of 10-year notes and $10 billion of 30-year bonds later this week. Stiles said the Treasury market was being driven "by people involved in the auctions looking for an excuse to cheapen things up." Lower prices would make the auctions easier to underwrite and distribute.
As for Tuesday's Fed policy meeting, a Reuters poll taken after the July US employment report on Friday showed primary dealers, who underwrite auctions of government securities, unanimously expected the Fed to keep interest rates unchanged next week and in September.
Markets will also analyse the statement that the Fed releases in conjunction with its interest-rate announcement. The benchmark 10-year Treasury note's yield remained below 4 percent, near two-week lows, on the impression of US economic fragility left by Friday's weak US jobs report.
The two-year Treasury note's price slipped 1/32, its yield rising to 2.52 percent from 2.50 percent on Friday. The 30-year Treasury bond traded down 3/32 in price for a yield of 4.58 percent, versus 4.57 percent late Friday.