U.S. Treasury prices closed mixed on Friday during a shortened pre-holiday trading session. Short-term bonds significantly underperformed after Federal Reserve Governor Christopher Waller stated that the likelihood of the central bank's next move being a rate cut or a hike was roughly equal. This prompted markets to increase bets on Fed rate hikes for this year and next. The yield curve subsequently flattened. Shortly after 2 p.m. New York time, the yield on the 2-year Treasury note rose approximately 4 basis points for the day, while yields on 20-year and 30-year bonds fell by about 1 basis point. As short-term bonds underperformed, the yield curve flattened considerably. The 2s10s spread and the 5s30s spread hit intraday lows, narrowing by about 5 basis points and 4 basis points on the day, respectively. The 2s10s spread has decreased by roughly 10 basis points over the past two trading sessions, on track for its largest two-day narrowing since April 2025. Most of the decline in Treasury prices occurred during the morning session. Following Waller's hawkish remarks, short-term bonds erased all their earlier gains. Overnight Indexed Swaps (OIS) tied to Fed meeting dates subsequently priced in additional rate hike premium. Markets now anticipate a rate hike of about 25 basis points this year, with the expected peak policy rate projected to rise back above 4% by mid-next year. As of 1:59 p.m. ET: - 2-year Treasury yield: 4.121% - 5-year Treasury yield: 4.2576% - 10-year Treasury yield: 4.5578% - 30-year Treasury yield: 5.0641% - 2s10s spread: 43.47 basis points - 5s30s spread: 80.57 basis points
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