US CPI + 10-year Treasury auction, tonight's US Treasuries are highly anticipated

When the $39 billion 10-year U.S. Treasury bond auction and key inflation data—the Consumer Price Index (CPI) report—arrive on the same day, a "double whammy" may break the silence in the U.S. Treasury market.

On Wednesday (June 11), the U.S. Department of Labor will release the May CPI report, and a few hours later, the U.S. Treasury will auction $39 billion in 10-year Treasury bonds.

Analysts point out that both the CPI data and the 10-year Treasury bond auction have the potential to trigger significant volatility in the U.S. Treasury market.

Recently, the U.S. bond market has been in a wait-and-see mode. So far in June, the yield on the 10-year Treasury bond has fluctuated within a narrow range of 4.316% to 4.517%, in stark contrast to the rollercoaster market driven by tariff news over the past two months.

Today's combination of CPI data and the 10-year Treasury bond auction could serve as a catalyst to awaken the dormant bond market. Regardless of the outcome, the market's period of calm may soon come to an end.

Auction Demand Becomes the Focus, Trade Policy Clouds Persist

Investors are particularly focused on the demand situation for recent auctions. Given that foreign investors are typically major sellers of U.S. Treasury bonds, there are concerns that trade policies may deter these buyers.

After last month's 20-year Treasury bond auction was met with a lukewarm response and rising yields, investor anxiety has been fully displayed.

According to previous reports from Wall Street, the U.S. Treasury auctioned $16 billion in 20-year bonds in May. The final winning yield was 5.047%, marking the second time the yield on 20-year Treasury bonds has surpassed the 5% threshold. The bid-to-cover ratio was 2.46, which was also poor, representing the lowest level since February.

Regarding the upcoming 10-year Treasury bond auction, U.S. interest rate strategist Ian Lyngen stated, "Investors are eager to find any signs that demand for U.S. Treasury bonds based on the trade war has significantly declined."

From the performance of recent 10-year Treasury bond auctions, inflation may be more important than trade concerns. The auctions in May and April performed robustly, with foreign investor participation above average, and the subscription situation in March was also quite good.

NatWest Bank in the UK expects the auction to be influenced by inflation data. Notably, the U.S. CPI data will be released at 8:30 AM local time on Wednesday, with the 10-year Treasury bond auction starting at 1 PM.

Inflation Expectations Relatively Mild, But Tariff Risks Remain

According to FactSet data, economists predict that the Consumer Price Index will grow by 0.2% month-on-month and rise by 2.4% year-on-year; excluding food and energy, the core CPI is expected to be 0.3% and 2.9% respectively.

However, investors are concerned that initial signs of tariff-related inflation may emerge.

Analysts point out that any unexpected upward movement in the data could make investors uneasy about inflationary pressures, as this would threaten the labor market and economic growth.

Potential Threat of a Double Blow

If the bond auction performs poorly and inflation exceeds expectations, it would be a double blow, potentially leading to a sharp rise in bond yields.

William Blair macro analyst Richard de Chazal wrote that Treasury bond auctions "are becoming a referendum on government debt policy," even though market indicators "have eased moderately in recent weeks and have not shown any significant recent signs of inflationary pressure."It is worth noting that as debt and deficits increasingly attract market attention, this U.S. Treasury auction involving long-term bonds also provides important clues about investor interest in U.S. government bonds.

Additionally, the U.S. Treasury will auction $22 billion in 30-year bonds on Thursday. An article from Wall Street View previously pointed out that former fund manager and current finance professor at Rutgers Business School, Fred Hoffman, warned: "If the 20-year Treasury auction and the upcoming auctions continue to fail, with poor tails and terrible bid-to-cover ratios, then there will be trouble."

Komal Sri-Kumar, president of Sri-Kumar Global Strategies, also stated: "This time is indeed different, one important reason being that the deficit levels are much higher. It is also different because sometimes auctions can suddenly fail, and it is difficult to predict exactly when that will happen."

As Sri-Kumar warned:

"The unknown factor here is the very real concern that yields could suddenly spike."

However, Chip Hughey, head of fixed income at Truist Advisory Services, pointed out:

"If we look at our yield levels relative to our global peers, U.S. Treasuries still have a relatively attractive advantage. Demand is expected to be quite robust, especially for the 10-year auction."