Treasury yields climb ahead of February inflation data

U.S. Treasury yields climbed early on Wednesday, ahead of the release of inflation data for February later in the morning.

The yield on the benchmark 10-year Treasury note rose about 1 basis point to 1.56% at around 7:30 a.m. ET. The yield on the 30-year Treasury bond advanced 2 basis points to 2.278%. Yields move inversely to prices (1 basis point equals 0.01%).

February’s consumer price index is due out at 8:30 a.m. ET on Wednesday. Economists polled by Dow Jones expect the inflation gauge to have risen 0.4% in February, or up 1.7% from a year ago.

However, ING senior rates strategist Antoine Bouvet told CNBC’s “Street Signs Europe” on Wednesday that he didn’t think this inflation reading would be the “big one.” He said ING expected big readings to only occur toward the end of the second quarter, “potentially peaking around 3.5% and above.”

ING had forecast average inflation to reach 2.9% this year and stay at that level next year, expecting the decline to be “very slow.”

Concerns about higher inflation have been driving bond yields higher recently.

The $1.9 trillion fiscal stimulus package is expected to add juice to the economy. That has raised inflation concerns, and the market could be spooked by a CPI report that is any hotter than expected.

House Democrats aim to pass the stimulus bill on Wednesday, with President Joe Biden expected to sign it before key unemployment programs expire on Sunday.

Key bond auction

While bond auctions are normally uninteresting events, Wednesday’s auction of $38 billion in 10-year Treasury notes could move the bond and stock markets.

The Treasury Department has printed roughly $3.6 trillion of new government debt in the past year to shore up the economy that was roiled by the Covid-19 pandemic. Increased supply of government debt and weak demand in a February bond auction has pushed interest rates higher. The U.S. 10-year Treasury yield has flirted with the 1.6% level in recent weeks, pressuring equities.

Investors will be watching the 1 p.m. ET bond auction for a signal as to where the bond market might be headed, which would also likely move stocks.

“It’s tempting to suggest it’s a make-or-break moment in many regards – reflation, supply indigestion, and stimulus upside. However, the US rates market will be far more responsive to any divergence from the best laid plans of policymakers,” Ian Lygen, head of U.S. rates strategy at BMO, told clients.

Bouvet said he expected Tuesday’s 10-year auction to “go well” and he anticipated “the message to the market to one of stability and calm.”

He said he believes the “bigger picture towards high rates [would] remain but clearly the set up to that auction, the fact that it is so well flagged and so well prepared is an encouraging sign.”

“The 10-year’s been trading strongly on the curve as well, another positive sign for this auction,” he added.

CNBC’s Patti Domm and Yun Li contributed to this report.

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