Treasury yields little changed

Trading was light and Treasury yields were little changed on Monday ahead of this week's auctions of $73 billion in US government debt and Thursday's release of the Consumer Price Index inflation metric, even as US oil prices reached their highest since 2014. Rising oil prices can pressure government bond yields by raising headline inflation, but Monday's rally had little impact on the Treasury market. That's likely because investors are waiting for the breakdown of CPI data before assessing whether US inflation, which has remained stubbornly low, is in fact making a return.
Oil prices are excluded from the Federal Reserve's preferred measure of inflation, the Core Personal Consumption Expenditures index. "The Fed is likely to look past higher energy costs and focus on the trend in less volatile underlying inflation. As such, we do not see the rise in oil prices as automatically leading to a faster pace of Fed tightening," wrote Erin Browne, head of asset allocation, and Evan Brown, director of asset allocation, both at UBS Asset Management, in a research note published Monday.
"Data won't demand to be traded until CPI Thursday morning. Traders will spend most of today and the first half of tomorrow working on their auction strategy and determining whether corporate supply will return in earnest this week," said Jim Vogel, interest rate strategist at FTN Financial in Memphis, Tennessee.
The Treasury Department's $73 billion refunding package for May is up from the $66 billion it offered in February, with most of the increase coming from short-end maturities. The Treasury will sell $31 billion in three-year notes, $25 billion in 10-year notes, and $17 billion in 30-year bonds.
The supply of debt has been increased to offset the impact of the Fed's reduction in its bond buying. The new debt supply will also be used to fund the $1.5 trillion the Republican government's tax cut bill will add to the federal deficit.
Yields on benchmark 10-year US Treasury notes were up slightly on Monday - by 0.8 basis point at 2.952 percent - from their last close. Yields on 30-year bonds were up just over 1 basis point at 3.125 percent from their last close. The two-year note was last at 2.497 percent, down modestly from Friday's close at 2.501 percent.