Setting the tone for the market this month? Yields fall on the eve of the key 30-year Treasury bond auction.

U.S. Treasury bonds have recouped some of last week's losses, providing some relief before the 30-year bond auction on Thursday. This auction will be a new test of investor demand for these struggling bonds. Yields on the entire yield curve have decreased by 2 to 3 basis points, in line with European bonds, and have reversed last Friday's significant sell-off due to better-than-expected U.S. job data. Monday's economic data was relatively subdued, shifting attention to events later in the week, including Wednesday's consumer inflation data and the bond sale the following day. Although regular bond auctions are usually routine, the $220 billion bond issuance scheduled for Thursday will undergo extra scrutiny due to recent volatility in the long-term U.S. bond market. In recent weeks, concerns over rising debt and deficits in major countries have led to a significant increase in bond yields. Lauren van Biljon, fixed income portfolio manager at Allspring Global Investments, commented on the 30-year bond auction, saying, "This will be crucial and will set the tone for the entire market in June. We know there is a lot of anxiety in the market about long-term financing." Since early April, U.S. 30-year bond yields have been climbing, reaching a peak of 5.15% on May 22, the highest level since 2023. On Monday, the yield was 4.95%, down 2 basis points, and the U.S. 10-year bond yield also fell by the same magnitude to 4.48%. Mike Riddell, portfolio manager at Fidelity International, said he took a steeper position by profiting from long-term bonds underperforming short-term bonds. Like PGIM Fixed Income, he stated that factors driving the trend in ultra-long-term bonds are no longer influenced by monetary policy. Riddell said, "This is no longer about policy rates, it's entirely about the fiscal story and supply-demand dynamics. What's worrying is that there doesn't seem to be any policy change after all these market movements." The U.S. will hold auctions for 3-year and 10-year bonds on Tuesday and Wednesday, respectively. Bond traders will also need to pay attention to the May CPI report, with economists predicting a year-on-year increase from 2.3% to 2.5%. Kathleen Brooks, research director at XTB, wrote in a report, "Signs of inflation pressure may weaken risk appetite and even limit the upside potential for the dollar, especially if this pressure threatens the U.S. 30-year bond auction on Thursday."