• Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities, said the five-year sale “should be fine” after yields climbed since mid-May. However, he highlighted the challenge of “thinner markets coming off the holiday, coupled with two auctions in one day” and hawkish signals from Federal Reserve officials.

Treasuries were mixed, with shorter-dated yields remaining a touch lower, as the first of Tuesday’s two US government-debt auctions attracted tepid demand. Treasury sold $69 billion of new two-year notes at a yield of 4.917%, one basis point above the pre-auction level of 4.907%. Dealers were left holding around 17%, a bit higher than the recent average. The current two-year yield was down about 1 basis point at 4.94%, and was slightly weaker after the sale.  The holiday-shortened week, following Monday’s Memorial Day
observance, means Tuesday features two coupon sales. Treasury will sell $70 billion in five-year notes at the regular 1 p.m. auction time. The five-year erased most of its early gains and was up 1 basis point at 4.54% ahead of the auction. Gregory Faranello, head of US rates trading and strategy for AmeriVet Securities, said the five-year sale “should be fine” after yields climbed since mid-May. However, he highlighted the challenge of “thinner markets coming off the holiday, coupled with two auctions in one day” and hawkish
signals from Federal Reserve officials. Minneapolis Fed President Neel Kashkari said Tuesday that while the US central bank’s policy stance is restrictive, policymakers haven’t entirely ruled out additional rate increases.

Read more: Fed’s Kashkari Says Rate Hike Not Entirely Ruled Out Longer-dated yields were near session peaks, with the 30-
year up 5 basis points at 4.62%, after a reading on May consumer confidence unexpectedly rose. It was the first increase in the
measure in four months.  The US two-year note remains near the upper end of this month’s 4.7% to 5.03% range as traders price in just one cut this year, with a nearly 80% possibility that it happens in November.  Treasury yields have bounced off of their mid-May lows, as relatively solid economic data has spurred Fed officials to quash hopes for near-term easing and reinforce the view that
rates will be kept higher for longer. Traders will likely focus on New York Fed President John Williams’ speech at the Economic Club of New York on Thursday. At the end of this week, the central bank enters its communications blackout ahead of its two-day policy meeting starting June 11. This week’s coupon auction calendar will end with a seven-year sale Wednesday. Once debt sales for Tuesday and Wednesday are absorbed, the market will focus on month-end-related flows that will coincide with Friday’s release of the central bank’s preferred inflation gauge — the personal consumption expenditures index. Economists expect the PCE deflator to have risen in April at an annual pace of 2.7%, the same as in March.