Key readings on inflation combined with two critical Treasury auctions this week offer a major test for the battered bond market.
On the inflation front, the Bureau of Labor Statistics releases separate reports for May — consumer prices on Wednesday, then producer prices on Thursday.
While economists are looking for only modest increases from both, any upside surprises could rattle investors wary of inflation pressures, primarily stemming from President Donald Trump’s tariffs, that could threaten the labor market and economic growth.
At the same time, the government debt sales, because they involve long-duration securities, will provide important clues about investor appetite for Treasurys at a time when debt and deficits are attracting increased attention both in financial markets and from economists. The Treasury Department will sell $39 billion of 10-year notes Wednesday, then $22 billion of 30-year bonds Thursday.
Richard de Chazal, macro analyst at William Blair, wrote that the auctions in particular are “shaping up to be a referendum on government debt policies” even as market indicators “have been gently moderating over the last couple of weeks and not indicative of any major near-term inflationary stress.”
