Treasuries Hit as US Sales Struggle to Lure Buyers: Markets Wrap

(Bloomberg) — The world’s biggest bond market sold off after weak Treasury sales, with traders also weighing mixed economic data and remarks from Federal Reserve speakers for clues on the policy outlook.

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Treasuries extended losses after the US sold $70 billion of five-year notes at 4.553% — above the pre-auction level of 4.540%. An earlier offering of $69 billion in two-year notes also came on the soft side. Just a few days before the Fed’s favorite price gauge, a report showed US consumer confidence unexpectedly rose in May — though recession expectations increased as well.

“Treasury yields are rising to the high of the day after the 5-year auction was poor,” said Peter Boockvar at The Boock Report. “This follows the 2-year auction earlier today that was mediocre — and will be followed by a 7-year tomorrow.”

US 10-year yields climbed eight basis points to 4.54%. The S&P 500 was little changed. The Nasdaq Composite closed above 17,000 for the first time ever. Nvidia Corp. rallied 7% after the Information reported Elon Musk has indicated its artificial intelligence startup xAI — which has raised $6 billion — will use the chipmaker’s H100 graphics processing units.

Bitcoin fell as traders monitored transfers by wallets belonging to the failed Mt. Gox exchange. Oil advanced as tensions flared in the Middle East, with a vessel attacked in the Red Sea and Israeli tanks reaching the center of Rafah.

“It may be a short week, but it looks to be a busy one,” said Chris Larkin at E*Trade from Morgan Stanley. “With last week’s FOMC minutes sounding a hawkish tone, traders will be eager to see cool data that could make it easier for the Fed to cut rates.”

As Wall Street returned from the holiday weekend, the “T+1” rule came into effect — making US equities settle in one day rather than two.

Investors also waded through remarks from Fed Bank of Minneapolis President Neel Kashkari, who said the policy stance is restrictive, but officials haven’t entirely ruled out additional rate hikes.

Bond traders who are stuck in a waiting game over Fed rate policy may soon get some welcome support.

Starting on Wednesday, and for the first time since the early 2000s, the Treasury Department will launch a series of buybacks targeting seasoned and harder-to-trade debt. Then in June, the US central bank is set to begin tapering the pace of its balance-sheet unwind, known as quantitative tightening, or QT.

The Fed’s first-line inflation gauge is about to show some modest relief from stubborn price pressures, corroborating central bankers’ prudence about the timing of interest-rate cuts.

Economists expect the personal consumption expenditures price index minus food and energy — due on Friday — to rise 0.2% in April. That would mark the smallest advance so far this year for the measure, which provides a better snapshot of underlying inflation.

Swap contracts are currently pricing in around 30 basis points of Fed rate cuts for all of 2024 — which equates to one reduction as the Fed moves have historically been increments of 25 basis points.

“We now expect the first Fed rate cut to come in November or December,” said Chris Low at FHN Financial. “The FOMC is looking for multiple good inflation reports, and by good, people like Governor Christopher Waller imply they should be mostly better even than April, let alone any of the months of the first quarter.”

Corporate Highlights:

Hess Corp. shareholders approved Chevron Corp.’s $53 billion takeover despite reservations among several prominent investors about a dispute with Exxon Mobil Corp. over a key asset.
T-Mobile US Inc., the second-largest mobile carrier in the US, has agreed to buy US Cellular Corp.’s wireless operations and some of its spectrum assets for about $2.4 billion.
Apple Inc.’s iPhone staged a rebound in China last month with shipments rising 52% amid a flurry of discounts from retail partners.
Elliott Investment Management has invested more than $2.5 billion in Texas Instruments Inc. and is pushing the chipmaker to improve free cash flow, setting the stage for another campaign by the influential activist investor.
GameStop Corp. said it brought in nearly $1 billion from a share sale program amid renewed interest for the so-called meme stock.
DraftKings Inc. and FanDuel-owner Flutter Entertainment Plc fell after the Illinois Senate passed legislation that would raise taxes on sports betting.

Key events this week: