US Treasuries ended lower on Friday, with the short end leading the decline and pushing the yield curve flatter, as a rebound in chipmaker shares lifted US equities.
A strong October employment report only briefly affected the market but still slightly reinforced pricing for a Federal Reserve rate hike in December.
In Treasury futures, several block trade sales weighed on the market; in the options market, demand persisted for December call options on 10-year Treasury futures, with investors using them to hedge against further gains.
Shortly after 3 p.m. Eastern time, yields on US Treasuries across maturities rose by 1 to 5 basis points, with the short and intermediate sectors posting the largest increases, while the gaps between 2-year and 10-year yields and between 5-year and 30-year yields each narrowed by more than 3 basis points.
The 10-year yield closed at about 4.86%, up 2.5 basis points, but closer to the lower end of this week's range of 4.81%-4.97%.
The main driver of market moves was the rebound in stocks, which reduced safe-haven demand for US Treasuries.
Before the cash equity close, the S&P 500 was up 0.6% and the Nasdaq 100 was up 1.9%, with technology shares rebounding sharply.
After the employment report was released during the US morning session, yields briefly rose to intraday highs, but then retreated as market attention shifted to the cash equity open; for the Fed's December meeting, the market priced in about 20 basis points of tightening, equivalent to roughly an 80% probability of a 25 basis point hike.
In the Treasury futures market, block trades that weighed on the market included sales of 5-year, ultra-long 10-year and long-bond Treasury futures, totaling about $2.4 million/DV01.
In the Treasury options market, there was demand for upside hedging through call options on 10-year Treasury futures, including the purchase of 30,000 calls with a strike price of 108.00, paying $8 million in premium; similar trades also appeared on Thursday.
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