The U.S. Treasuries traded slightly firmer on Wednesday after data showed higher than expected homes sales data, which strengthened bets of an interest rate hike in June. Also rallying crude oil prices supported the cause. The yield on the benchmark 10-year Treasury note rose 1bp to 1.868 percent and the yield on the short-term 2-year bonds climbed 1bp to 0.930 percent by 1235 GMT.
The April Commerce Department new home sales report revealed an increase in the headline measure of 16.6 percent m/m to 619k, well above market expectations for a 523k result, as compared to revised 531k in March (previous was 511k). Overall, upward pressure stemmed from gains seen in 3 of 4 measured regions, highlighted by increases in the Northeast (+52.8 percent), the South (+15.8 percent) and the West (+18.8 percent), partially offset by a decrease seen in the Midwest (-4.8 percent). The supply of new homes decreased to 4.7 months in April (down from 5.5 months in March). Meanwhile, the median price pushed higher 7.8 percent m/m to 321.1k (9.7 percent y/y), from $297.9k reading seen in March. Alongside the increase seen in April, we expect new home sales will find greater support over the course of 2016, though likely finding some headwinds from higher mortgage rates.
Moreover, the U.S bonds have been closely following developments in oil markets because of their impact on inflation expectations, which are well below the Federal Reserve's target. Today, Crude oil jumped more than 1 percent and pushed closer to $50 a barrel, hitting its highest in over seven months after industry data suggested a larger-than-expected drawdown in U.S. crude inventories last week. American Petroleum Institute inventory data showed crude oil dropped by 5.14 million barrels. Moreover, gasoline stocks climbed by 3.6 million barrels, while inventories of distillate fuels, including diesel and heating oil, fell by 2.9 million barrels. The International benchmark Brent futures rose 1.38 pct to $49.28 and West Texas Intermediate (WTI) jumped 1.32 pct to $49.26 by 0815 GMT.
Markets now look ahead to FHFA home prices and Markit US services PMI data on Wednesday, followed later by a 5-Year note auction and comments by Dallas Fed President Kaplan later in the session.
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