Bond Report: Treasury yields tick up despite good debt auction, with Fed meeting ahead

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U.S. Treasury yields edged higher on Tuesday despite good demand at an auction for government debt.

Investors also eyed the Federal Reserve’s two-day policy meeting with the central bank expected to reinforce its messaging that it will continue to support the economy through the pandemic.

What are Treasurys doing?

The 10-year Treasury note yield

rose 1.3 basis points to 1.622%, while the 2-year note rate

was flat at 0.149%. The 30-year bond yield

gained 2.1 basis points to 2.391%.

What’s driving Treasurys?

The U.S. Treasury Department sold $24 billion of 20-year bonds in the afternoon, drawing strong interest from bond buyers.  The ratio of bids received to bids accepted at the auction stood at 2.51 times compared to a historical average of 2.32 times.

The healthy auction results briefly eased pressure on the bond market Tuesday afternoon, but bearish momentum ultimately took over for the rest of the trading session.

With the auction out of the way, the highlight for this week will be the Fed meeting. The U.S. central bank is expected to maintain its dovish stance amid concerns stronger economic growth may pull forward the Fed’s timetable for tapering its asset purchases and raising interest rates.

See: What would cause the Fed to take a U-turn?

Other global central banks continued to push back against the rise in long-term government bond yields. European Central Bank chief economist Phillip Lane said he wanted yields to move in step with the economy.

Investors handled a parade of U.S. economic data on Tuesday. February retail sales dropped 3%, showing the impact from winter weather. On the more positive side, January’s reading was revised up to a 7.6% increase.

February month’s industrial production fell 2.2%, after rising 1.1% in January. The March reading of the National Association of Home Builders’ housing market index was down to a reading of 82.

What did market participants say?

“The biggest issue for the Fed right now is that the markets do not seem to believe in Powell’s signature policy of ‘average inflation targeting’ and its implication that rate policy will not be tightened for some period,” said Thomas Costerg, senior U.S. economist at Pictet Wealth Management.