US Treasury bonds advanced, with short-term notes leading the gains, causing the yield curve to steepen. The market's pricing for Federal Reserve interest rate hikes eased alongside a further decline in benchmark crude oil prices. WTI crude oil futures fell 3.7% to $69.23 per barrel, marking the first close below $70 since February 27.
Just after 3 p.m. New York time, short-term Treasury yields were down 3 to 4 basis points on the day, while long-term bonds showed little change. The yield spreads between the 2-year and 10-year notes, and between the 5-year and 30-year bonds, widened by approximately 1.5 basis points and 4 basis points, respectively. The 10-year Treasury yield was around 4.37%, near the lower end of this week's range of 4.36% to 4.51%.
For most of Friday's trading session, Treasuries found support as oil prices continued to give back gains triggered earlier by the US military action against Iran. The increased volume of vessel traffic through the Strait of Hormuz helped alleviate concerns about a supply shock.
Market expectations for Federal Reserve rate hikes moderated, with pricing indicating about 31 basis points of tightening by year-end, down from around 35 basis points at Thursday's close. The pricing for a rate hike at the July meeting also eased, moving to approximately 8 basis points from about 9 basis points previously.
Nevertheless, trading volume for August federal funds futures remained elevated, with sellers dominating the action in early trading. Volume for the August contract exceeded 144,000 contracts, which was more than double the volume for the second-most active July contract.
As of 3:42 p.m. New York time, the 2-year Treasury yield was 4.088%.
The 5-year Treasury yield was 4.132%.
The 10-year Treasury yield was 4.3745%.
The 30-year Treasury yield was 4.865%.
The yield spread between the 5-year and 30-year Treasuries was 73.13 basis points.
The yield spread between the 2-year and 10-year Treasuries was 28.44 basis points.
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