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Bond Report: Bond yields little changed after U.S. consumer confidence report misses expectations

Bond yields held steady on Tuesday after data showed that U.S. consumer confidence fell this month and missed expectations.

What’s happening

The yield on the 2-year Treasury
TMUBMUSD02Y,
3.129%

rose 1.9 basis points to 3.122% after factoring in the new issue bond that was auctioned on Monday, according to Dow Jones Market Data. Yields move in the opposite direction to prices.

The yield on the 10-year Treasury
TMUBMUSD10Y,
3.189%

advanced 1.3 basis points to 3.206% versus 3.193% on Monday.

The yield on the 30-year Treasury
TMUBMUSD30Y,
3.287%

rose less than 1 basis point to 3.311% from 3.304% on Monday.

Those were the highest levels in a week for all three yields.

What’s driving markets

Economic data released on Tuesday showed that U.S. consumer confidence fell in June to 98.7 and missed the median forecast of economists surveyed by The Wall Street Journal. In addition, the S&P CoreLogic Case-Shiller 20-city index posted a 21.2% year-over-year gain in April, up slightly from 21.1% in the previous month. And the U.S. trade deficit in goods fell for a second month in a row after setting record, dropping 2.2% in May to $104.3 billion.

Yields have jumped this year in response to surging inflation and expectations of further Federal Reserve interest-rate hikes.

In an interview on CNBC Tuesday, New York Fed President John Williams said he expects the economy to slow a bit, but a recession can be avoided. Meanwhile, ARK Invest’s Cathie Woods told the network that she thinks the U.S. economy is already contracting.

Meanwhile, a $40 billion sale of 7-year notes produced “another soft auction,” according to BMO Capital Markets strategist Ben Jeffery.

What analysts are saying

“Right now, uncertainty over factors such as how quickly inflation will fall, how resilient consumer spending will remain, and how committed the Fed will be to hiking rates in the face of slowing growth means there are multiple possible paths for the economy, with no one scenario clearly the most likely,” said Solita Marcelli, chief investment officer for the Americas at UBS Global Wealth Management.

“Within fixed income, we advise moving up in quality. We now find agency mortgage-backed securities attractive, in addition to preferred securities,” Marcelli said in a note.

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