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US Treasury short-end bonds rebounded in the afternoon during US trading hours, pushing the 2-year yield back to a level roughly flat compared to the previous day. New York Fed President Williams stated that one more rate hike this year would be appropriate, but currently believes the Fed will not need to raise rates again in 2027.
The long end maintained its upward momentum, with 20-year to 30-year yields falling nearly 4 basis points in late trading. The early-session curve flattening was driven by a block purchase of ultra-long bonds, and some flows also appeared in the options market ahead of Wednesday's key CPI data release.
Just after 3 PM New York time, US Treasury yields were roughly flat at the short end and down nearly 4 basis points at the long end, resulting in a bullish flattening of the yield curve; the 2s10s and 5s30s spreads narrowed by 2.5 basis points and 2 basis points respectively during the session. The 10-year Treasury yield closed at approximately 5.21%, notably above its intraday low of 5.17%.
Williams' dovish remarks provided support for the short end of the curve, pushing the 2-year yield down from an intraday high of 4.816% to around 4.79%; overnight index swaps (OIS) tied to Fed meeting dates remained stable, indicating the market broadly expects one 25 basis point rate hike before the end of this year, and a cumulative 75 basis points of hikes by mid-next year.
Just after 8 AM New York time, the yield curve began to flatten after a $355,000/DV01 ultra-long bond purchase appeared. In the US Treasury options market, bearish demand emerged during the session, with two notable trades appearing to bet on continued selling pressure at the long end. Another trade appeared to be specifically hedging against CPI event risk, a short-term trade betting that yields would rise by Wednesday's close.
As of 3:51 PM Eastern Time, the 2-year Treasury yield rose 0.2 basis points to 4.789%; the 5-year Treasury yield fell 1.1 basis points to 5.0049%; the 10-year Treasury yield fell 2.3 basis points to 5.2147%; the 30-year Treasury yield fell 3.2 basis points to 5.5637%; the spread between 5-year and 30-year Treasury yields narrowed by approximately 2.1 basis points to 55.7 basis points; the spread between 2-year and 10-year Treasury yields narrowed by approximately 2.1 basis points to 42.36 basis points.
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