US Treasury Market: Mixed Close After Moderate Inflation Data and 10-Year Auction

US Treasury bonds finished with mixed results on Wednesday, as the yield curve steepened. The July Consumer Price Index (CPI) data came in moderate, prompting traders to slightly reduce their bets on the Federal Reserve raising interest rates more than once in the coming months.

Meanwhile, the auction of 10-year US Treasury notes generated the highest yield since 2007, with solid demand. Shortly after 3 p.m. in New York, yields on 2- to 7-year notes fell by 1-2 basis points on the day, while longer-dated yields were largely unchanged. Over the past two trading sessions, Treasury yield movements had been influenced by oil price fluctuations, but on Wednesday, oil prices saw limited movement and closed roughly flat.

The July CPI data matched economists' median expectations, slightly weakening the market's outlook for Fed rate hikes. Currently, the market is pricing in about 11 basis points of tightening at the September meeting, around 28 basis points by year-end, and approximately 40 basis points by mid-2027. Although the CPI data was in line with forecasts and had a limited impact on Treasury pricing, futures trading volume surged.

Within one minute of the data release, over 40,000 10-year Treasury note futures contracts changed hands, marking the highest one-minute volume since the release of July employment data on August 7. However, overall futures volume for the day was close to the 20-day average.

The US Treasury's auction of 10-year notes resulted in a high yield of 4.683%, the highest since 2007, but only slightly above the pre-auction trading level at the 1 p.m. New York deadline. This auction was buoyed by the recent steepening of the 2s10s yield curve, with the spread approaching 49 basis points, the highest level since mid-May.

As of 4:15 p.m. Eastern Time, the 2-year Treasury yield stood at 4.2032%; the 5-year yield at 4.38%; the 10-year yield at 4.6884%; and the 30-year yield at 5.2521%. The spread between the 5-year and 30-year yields was 87.04 basis points, while the spread between the 2-year and 10-year yields was 48.31 basis points.