Treasuries Finish Lackluster Session Nearly Flat

(RTTNews) - Following the notable pullback seen in the previous session, treasuries showed a lack of direction over the course of the trading day on Tuesday.

Bond prices spent the day bouncing back and forth across the unchanged line before closing roughly flat. As a result, the yield on the benchmark ten-year note, which moves opposite of its price, inched up by less than a basis point to 1.759 percent.

The lackluster performance by treasuries came even as traders digested a slew of U.S. economic data that seemed to increase the likelihood the Federal Reserve will raise interest rates next month.

The Labor Department released a report showing a slightly bigger than expected increase in consumer prices in the month of April.

The report said consumer prices climbed by 0.4 percent in April after inching up by 0.1 percent in March. Economists had expected prices to rise by 0.3 percent.

Excluding a jump in energy prices as well as an uptick in food prices, core consumer prices edged up by 0.2 percent in April after creeping up by 0.1 percent in March. The modest increase matched economist estimates.

On an annual basis, the pace of consumer price growth accelerated to 1.1 percent in April from 0.9 percent in March, but the pace of core price growth slowed to 2.1 percent from 2.2 percent.

With the increase in the headline rate and the core rate remaining above 2 percent, ING Chief International Economist Rob Carnell said the excuses for not raising interest rates at the Federal Reserve's June meeting are looking more stretched.

"Comments from Fed speakers over recent months have reiterated that June is a 'live' month, and that two rate hikes look a reasonable prospect for 2016," Carnell said.

"But financial markets have been pricing in a far flatter curve for the Fed over the coming year," he added. "Today's inflation data is a clarion call for a market rethink on the Fed."

Upbeat reports on residential construction and industrial production also led to renewed speculation that the Fed could raise interest rates next month.

Separate reports from the Commerce Department and the Federal Reserve showed that housing starts and industrial production both rebounded by more than expected in April.

Speaking at an event hosted by Politico, Atlanta Fed President Dennis Lockhart acknowledged that the Fed may raise rates next month but noted the central bank will take in a lot more data before making its decision.

Trading on Wednesday could be impacted by reaction to the minutes of the latest Fed meeting, which may shed additional light on the outlook for interest rates.