On Tuesday, U.S. Treasury securities experienced a more pronounced decline after showing slight weakness early in the session. Bond prices ended the day significantly lower following a roughly flat close last Friday. Consequently, the yield on the benchmark ten-year note, inversely related to its price, surged by 7.5 basis points to 4.542%, marking its highest closing level in almost a month.
The initial downturn in treasuries was triggered by an unexpected boost in consumer confidence reported by the Conference Board for May. The consumer confidence index climbed to 102.0 in May, up from an upwardly revised 97.5 in April, defying economists' forecasts of a drop to 95.3 from the previously reported 97.0.
Dana M. Peterson, Chief Economist at The Conference Board, highlighted that average 12-month inflation expectations slightly increased to 5.4% in May from 5.3% in April. "Perhaps as a consequence, the share of consumers expecting higher interest rates over the year ahead also rose, from 55.2% to 56.2%," Peterson noted.
Further pressure on treasuries was evident as the Treasury Department announced that this month's auctions of $69 billion in two-year notes and $70 billion in five-year notes drew substantially lower demand than average. The two-year note auction yielded a high of 4.917% with a bid-to-cover ratio of 2.41, compared to an average of 2.67 for the last ten two-year note auctions. The five-year note auction recorded a high yield of 4.553% and a bid-to-cover ratio of 2.30, below the 2.45 average of the prior ten five-year note auctions.
The bid-to-cover ratio, a metric indicating the level of demand by showcasing the number of bids for every dollar of securities sold, illustrated the tepid interest in these auctions.
Though the U.S. economic calendar remains relatively calm on Wednesday, the Federal Reserve's Beige Book release in the latter part of the trading day may draw some attention.
