Nominal Treasury yields ended very close to unchanged across the curve Monday, after a modest curve-steepening morning selloff was reversed by midday, and then yields settled into very narrow ranges throughout the afternoon.
The first sequential increase in China’s PPI since 2013 – though a modest monthly gain resulted in a still deeply negative 4.3% year/year decline – provided a boost to sentiment overnight. The main driver of the morning pressure on the long end though seemed to come more from tracking Germany, and some general pressure on global government bonds ahead of a lot of sovereign supply this week, including 3-year, 10-year, and 30-year Treasury auctions the next three days as well as issuance in France, the Netherlands, the U.K., and Japan.
The early backup in yields faded pretty quickly in New York trading, however, as investors also looked ahead to the start of corporate earnings reporting season and some important economic data reports this week highlighted by retail sales and CPI. After closing at 1.72% on Friday, the 10-Year yield reached as high as 1.75% mid-morning but was back down at 1.72% by noon, where it held with little volatility through the 3:00 close. Stocks directionally mirrored that move but with a bigger swing, from a 0.7% morning high to a -0.3% close.
On the other hand, a broad pullback in the dollar was sustained throughout the day and was accompanied by decent upside in commodity prices, but that did not carry over to TIPS, with real yields rising and inflation breakevens falling as nominals held steady. TIPS performed comparatively poorly despite a 3% rally in gasoline futures and 2% in oil amid real yield selling ahead of the CPI report on Thursday, with the 5-Year yield up 2 bp to -0.39%, 10-year 3 bp to 0.15%, and 30-Year 3 bp to 0.84%.
The 10-year inflation breakeven in constant maturity yields terms was down 2 bp to 1.56%, the low in the month after reaching a recent high of 1.66% two weeks ago after Chair Yellen’s speech.
