Key facts
- The U.S. dollar eased from a two-month high after Iran stated its attacks on Israel had concluded.
- Strong U.S. jobs data released on Friday increased bets on a Federal Reserve rate hike.
- The U.S. added 172,000 jobs last month, exceeding market expectations.
- Two-year Treasury yields fell, while 10-year yields rose.
- The Treasury will sell $119 billion in new coupon-bearing supply this week.
U.S. Treasury yields were mixed on Monday, with two-year yields pulling back from a 15-month high reached on Friday. A stronger-than-expected jobs report bolstered bets that the Federal Reserve will raise interest rates later this year. Fed funds futures traders now see a 68% chance of a hike by December.
Elevated oil prices driven by supply disruptions stemming from the Iran war have stoked fears that inflation could become more entrenched. However, Thomas Simons, chief U.S. economist at Jefferies, expects consumer price inflation to fall back below 2% within a year. Many analysts see Fed rate hikes as unlikely unless inflation expectations rise further and become embedded in core consumer prices.
Consumer price inflation data on Wednesday is expected to show that core consumer prices eased on a monthly basis in May to 0.3% from 0.4% in April, but accelerated on an annual basis to 2.9% from 2.8% during the month. The 2-year note yield fell 1.7 basis points to 4.145%, while the yield on benchmark U.S. 10-year notes rose 0.6 basis points to 4.54%. The yield curve between 2- and 10-year notes steepened to 40 basis points.
The Treasury will sell $119 billion in new coupon-bearing supply this week, including $58 billion in three-year notes on Tuesday, $39 billion in 10-year notes on Wednesday, and $22 billion in 30-year bonds on Thursday.