After moving notably lower over the course of the previous session, treasuries showed a lack of direction during trading on Tuesday.
Bond prices spent the day bouncing back and forth across the unchanged line before closing nearly unchanged. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, edged down by less than a basis point to 1.499 percent.
The choppy trading came as traders were reluctant to make significant moves ahead of the Federal Reserve’s monetary policy announcement.
The two-day Fed meeting that began today is not likely to result in any changes to monetary policy, but the central bank could signal that it is beginning to think about scaling back its asset purchases.
The Fed announcement on Wednesday is likely to acknowledge the recent increase in inflation, which was highlighted by today’s Labor Department report showing record annual producer price growth.
The Labor Department said its producer price index for final demand advanced by 0.8 in May after climbing by 0.6 percent in April. Economists had expected another 0.6 percent increase.
Excluding prices for food, energy, and trade services, core producer prices rose by 0.7 in May, matching the increase seen in the previous month. Core prices were expected to rise by 0.5 percent.
Compared to the same month a year ago, producer prices in May were up by 6.6 percent, reflecting the largest increase since 12-month data were first calculated in November 2010.
The annual rate of core producer price growth also accelerated to a record high of 5.3 percent in May from 4.6 percent in April.
Meanwhile, the Commerce Department released a separate report showing retail sales tumbled by more than expected in the month of May, although the steep drop followed a notable upward revision to the previous month’s data.
The report said retail sales plunged by 1.3 percent in May following an upwardly revised 0.9 percent increase in April.
Economists had expected retail sales to slump by 0.8 percent compared to the unchanged reading originally reported for the previous month.
Excluding sales by motor vehicle and parts dealers, retail sales still slid 0.7 percent in May after coming in unchanged in April. Ex-auto sales were expected to inch up by 0.2 percent.
The Fed also released a report showing industrial production increased by more than expected in the month of May after a downwardly revised uptick in the previous month.
The Fed said industrial production climbed by 0.8 percent in May after inching up by a revised 0.1 percent in April.
Economists had expected industrial production to rise by 0.6 percent compared to the 0.5 percent increase that had been reported for the previous month.
Bond traders largely shrugged off the results of the Treasury Department’s auction of $24 billion worth of twenty-year bonds, which attracted modestly above average demand.
The twenty-year bond auction drew a high yield of 2.120 percent and a bid-to-cover ratio of 2.40, while the ten previous twenty-year bond auctions had an average bid-to-cover ratio of 2.33.
The bid-to-cover ratio is a measure of demand that indicates the amount of bids for each dollar worth of securities being sold.
Trading activity may remain subdued on Wednesday in the lead up to the afternoon release of the Fed’s monetary policy announcement as well as the central bank’s latest economic projections.
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