Treasuries See Further Downside Amid Ongoing Interest Rate Worries

After ending the previous session substantially lower, treasuries saw some further downside during trading on Tuesday.

Bond prices fluctuated over the course of the session but largely maintained a negative bias before closing moderately lower. Subsequently, the yield on the benchmark ten-year note, which moves opposite of its price, rose 3.1 basis points to 4.659 percent.

The ten-year yield added to the 12.9 basis points spike seen on Monday, ending the session at a new five-month closing high.

Treasuries initially regained ground but came under pressure following the release of a Federal Reserve report showing a continued increase in U.S. industrial production in the month of March.

The Fed said industrial production climbed by 0.4 percent in March, matching the upwardly revised advance in February as well as economist estimates.

On the heels of yesterday's strong retail sales data, the industrial production data added to concerns about the outlook for interest rates.

Adding to the worries, Fed Chair Jerome Powell indicated in afternoon remarks that rates are likely to remain higher for longer amid a "lack of progress" toward reaching the central bank's inflation goal.

"Recent data shows solid growth and continued strength in the labor market, but also a lack of further progress so far this year on returning to our 2 percent inflation goal," Powell said during a moderated discussion with Bank of Canada Governor Tiff Macklem.

Fed officials, including Powell, have repeatedly stated they need "greater confidence" inflation is slowing before they consider cutting interest rates.

"The recent data have clearly not given us greater confidence, and instead indicate that it's likely to take longer than expected to achieve that confidence," Powell said. "That said, we think policy is well positioned to handle the risks that we face."

The Fed chief's remarks come as recent data showing sticky inflation along with continued economic strength have led to reduced expectations of a rate cut in June.

According to CME Group's FedWatch Tool, the chances of a 25 basis point rate cut in June have tumbled to 16.4 percent compared to 56.1 percent just a week ago.

Trading activity may be somewhat subdued on Wednesday amid a relatively quiet day on the U.S. economic front, although the Fed's Beige Book may attract some attention later in the day.

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