US Treasury futures advanced during the American session, supported by a decline in oil prices as investors weighed renewed US-Iran tensions and their potential impact on energy shipments through the Strait of Hormuz. Treasuries held onto their gains in the afternoon following a robust 30-year bond reopening auction, concluding a week of three sales where the awarded yields all came in below pre-auction trading levels. In the short-end futures market, SOFR-Fed funds futures basis trading was active.
Short-end Treasury yields fell by as much as 6 basis points and long-end yields dropped by about 2 basis points shortly after 3 p.m. New York time, widening the 2s10s and 5s30s spreads by about 2 and 4 basis points on the day, respectively. The yield on the benchmark 10-year US Treasury note was near its session low, down roughly 4 basis points to 4.54%.
The US Treasury Department sold $22 billion of 30-year bonds at a yield 0.3 basis points below the pre-auction trading level. Primary dealers were awarded 10%, the lowest share since March. Indirect bidders took a sharply higher share of 77.7%, among the highest on record, while direct bidders' share fell to 12.2%. The bid-to-cover ratio was 2.44, above the 2.39 average.
Ahead of the auction, Treasuries found solid support, with yields near session lows, as oil prices continued to decline despite the US conducting strikes against Iran for a second consecutive day.
Gains in the US morning session were bolstered by a block purchase of 5-year Treasury futures with a DV01 of $1.1 million, providing support for the middle of the yield curve.
In short-end futures, the July SOFR-Fed funds futures basis saw substantial buying, with the basis turning positive for the first time, prompting Barclays to take profits on its recommended long position. In late trading, volume in the July contract hit a record high near 150,000 contracts, more than double the 15-day average of 60,000.
As of 4:11 p.m. New York time, the yield on the 2-year Treasury note was down 4.8 basis points to 4.1702%.
The yield on the 5-year Treasury note was down 5.1 basis points to 4.2762%.
The yield on the 10-year Treasury note was down 3.4 basis points to 4.5451%.
The yield on the 30-year Treasury bond was down 1.6 basis points to 5.0557%.
The yield spread between 5-year and 30-year Treasuries widened by about 3.5 basis points to 77.77 basis points.
The yield spread between 2-year and 10-year Treasuries widened by about 1.6 basis points to 37.28 basis points.
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