Following a flat finish in the previous session, treasuries experienced a downturn during trading on Tuesday.
Although bond prices recovered some ground after an initial decline, they ultimately stayed in negative territory. Consequently, the yield on the benchmark ten-year note, which inversely correlates with its price, increased by 3.1 basis points to 4.300 percent.
The dip in treasuries may be attributed to profit-taking after a period of recent strength that saw the ten-year yield declining for four consecutive sessions.
However, selling pressure eased as traders processed Federal Reserve Chair Jerome Powell's testimony before the Senate Banking Committee.
In his remarks, Powell noted that additional positive economic data would bolster the central bank's confidence that inflation is steadily moving toward its 2 percent target, potentially leading to an interest rate cut.
“The Committee has stated that it does not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2 percent," Powell stated in his prepared comments.
He added, “Incoming data for the first quarter of this year did not support such greater confidence. However, recent inflation readings have shown modest progress, and more positive data would strengthen our confidence that inflation is moving sustainably toward 2 percent.”
Powell's comments came in the context of a recent Commerce Department report, which revealed that the annual growth rate of core consumer prices—excluding food and energy—slowed to 2.6 percent in May from 2.8 percent in April.
Looking ahead, the Labor Department is set to release its June consumer price inflation report on Thursday. Economists anticipate that the annual consumer price growth rate will decelerate to 3.1 percent in June from 3.3 percent in May. Meanwhile, the core consumer price growth rate is expected to remain steady at 3.4 percent.
The Fed Chair also cautioned against keeping interest rates elevated for an extended period, warning that it could hinder economic growth.
“Given the progress made in reducing inflation and cooling the labor market over the past two years, elevated inflation is not the only risk we face," Powell noted. "Delaying or inadequately reducing policy restraint could unduly dampen economic activity and employment.”
Trading activity on Wednesday is expected to be subdued, as traders anticipate the release of the highly awaited consumer price inflation report on Thursday.
