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Bond Report: U.S. Treasury yields climb to start trade in June

U.S. government bonds yields edged higher Tuesday morning ahead of manufacturing sector data that may give fresh insights into the state of the economic recovery from the pandemic and rising inflation.

Markets in the U.S. were closed on Monday in observance of Memorial Day.

How Treasurys are performing

Bond prices fall as yields rise, and vice versa.

Drivers in the fixed-income market

U.S. bond yields will likely drift higher until Friday’s U.S. May employment report after the Federal Reserve’s preferred inflation gauge rose to a 13 year high in April in data last week.

A report on U.S. manufacturing in May at 10 a.m. Eastern Time from the Institute for Supply Management’s will be looked at to gauge activity as businesses wrestle with rising demand and rising commodity prices.

Investors continue to focus on the state of inflation in the U.S. as the economy recovers from the COVID pandemic.

Crude-oil prices rose the highest level in more than two years, as investors awaited a meeting of the Organization of the Petroleum Exporting Countries and its allies that will decide on production levels.

Higher oil prices
CL.1,
+3.23%

can weigh on government debt yields because they point to a rise in pricing pressures which can be anathema for Treasury debt’s fixed value.

A rise in global equities also may be pushing yields higher, and dragging prices of debt lower, as investors gravitate to assets perceived as comparatively riskier to start June trading.

Among speakers on Tuesday from the Federal Reserve, Fed Vice Chair Randal Quarles will be interviewed by Politico at 10 a.m., while Fed Gov. Lael Brainard is slated to deliver a speech for the Economic Club of New York at 2 p.m.

Meanwhile, U.S. Transportation Secretary Pete Buttigieg said President Biden and members of his team would continue negotiating with Republicans over a $1.7 trillion infrastructure plan but said that progress needs to be made before Congress returns on June 7.

What fixed-income strategists are saying

“We continue to believe a steeper curve will result as June supply is digested and look for 10 year yields to rise back to 1.7%,” wrote Tom di Galoma managing director of Treasurys trading at Seaport Global Securities, in a daily note.

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