Rates Climb on Weak UST Auction Demand

Rates rise significantly following $139B of Treasury auctions. Swap rates and Treasury yields soared following weak demand at a $69B auction of 2y notes and a $70B auction of 5y notes. Rates rose nearly 10bps from session lows, with the short end of the curve rising 3-4bps and the long end climbing 7-9bps. US consumer confidence contributed as well, which unexpectedly rose in May. Elsewhere, WTI crude oil rose above $80 per barrel as tension in the Middle East continues, including Israeli tanks reaching the center of Rafah and fresh vessel attacks in the Red Sea.

Minneapolis Fed President Kashkari has not ruled out rate hikes. Fed hawk (and 2024 non-voter) Kashkari has not yet eliminated rate hikes as a possibility, and he says that is true for all other Fed officials as well. He stated, “I don’t think anybody has totally taken rate increases off the table… I think the odds of us raising rates are quite low, but I don’t want to take anything off the table.” He pointed to strong wage growth as a major cause for concern, suggesting that current wages are not consistent with the Fed’s 2% inflation goal. He also emphasized that there “certainly” won’t be more than two rate cuts this calendar year.

Consumer confidence climbed for the first time since January. The Conference Board’s measure of US consumer confidence climbed from 97 to 102, vs. an expected decline to 96. The jump was driven by less-negative views on business conditions and the labor market. Despite this, consumer expectations of a recession over the next year rose for a second consecutive month, and the report showed that consumers are increasingly concerned about inflation and household finances.