(Bloomberg) -- Treasuries fell, led by the long end, as traders braced for an acceleration in US inflation and an auction of 10-year bonds.
Yields on 30-year debt rose as much as four basis points to 4.96%, while those on two-year notes were little changed at 4.02%, causing the curve to bear steepen. Traders held bets on Federal Reserve interest-rate cuts steady, pricing 42 basis points of reductions by year-end.
Inflation data due later on Wednesday is expected to show consumer price growth accelerated in May as President Donald Trump's tariff policies passed-through to imported goods. Later on the day, a $39 billion auction of 10-year bonds will gauge investor appetite for longer-dated debt as fiscal concerns grow.
"Inflation data could determine the Fed's next move," said Kathleen Brooks, research director at XTB. "The big question is whether tariffs will start to impact."
Markets are currently wagering the US central bank will cut interest-rates once more with around a 70% chance of a second move this year. Policymakers have reiterated their wait-and-see stance toward further easing as they assess the impact of Trump's trade policies.
"We're probably going to have one cut by the end of the year but it's far from clear and really all depends on what's happening with tariffs and inflation," said Nicolas Trindade, senior portfolio manager at AXA Investment Managers, who holds around a 10% allocation to US linkers to protect against upside surprises to inflation. "We'll get better clarity this afternoon with US CPI."
An auction of 10-year Treasuries will be closely monitored as a test of market sentiment ahead of a hotly anticipated 30-year bond sale on Thursday. Yields on longer-dated debt have soared in recent weeks on concern over ballooning government deficits.
Investors will also follow Treasury Secretary Scott Bessent's testimony before the House Ways and Means Committee at 10 a.m. ET. Lawmakers are likely to ask him about trade talks with China, as well as the road ahead for the nation's economy.
"There's room for more risk premium at the long end of the curve," said Andrew Balls, global fixed income CIO at Pimco on Bloomberg TV, adding that he favors exposure to Treasuries maturing between five to 10-years. "When you look at the long-term outlook for fiscal globally, the US does stand out."
--With assistance from Francine Lacqua.
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