US Bonds Slip as Early Oil-Driven Gains Fade Amid Heavy Supply

Treasuries closed lower on the day as early session buying, fueled by a dip in crude prices, faded through late morning and into the afternoon, while a 2-year note auction and a crowded slate of dollar-denominated debt issuance added pressure.

The 2-year Treasury auction saw solid demand with limited reaction at the short end, as the high yield came in 0.2 basis points above the pre-auction trading level.

Just after 3 p.m. in New York, yields across the curve were up 1-2 basis points, with the 2s10s and 5s30s spreads both widening by roughly 1 basis point on the day.

The 10-year Treasury yield settled near its intraday high, climbing 1.5 basis points to approximately 4.965%.

Bonds initially rallied as oil prices came under pressure amid diplomatic efforts to restart shipping through the Strait of Hormuz. However, buying momentum waned as the session progressed, erasing those gains.

By late trading, WTI futures were still down about 1.2% on the day but had recovered from their lows, while the S&P 500 edged higher, supported by President Donald Trump's remarks. Trump noted that US officials held a "very good" meeting with Iranian representatives.

The Treasury's $69 billion 2-year note auction produced a high yield 0.2 basis points above pre-auction levels, marking the highest awarded yield since May 2024. Primary dealers took down 13.2% of the supply, the most since March, while indirect bidders saw their allocation fall to 57.8% and direct bidders increased their share to 29%.

The corporate issuance calendar also weighed on the session, with eight companies seeking to raise a combined $18.2 billion through US investment-grade bond sales.

As of 3:34 p.m. Eastern Time, the 2-year yield was down 1.4 basis points at 4.732%, the 5-year yield fell 1.1 basis points to 4.8164%, the 10-year yield slipped 0.6 basis points to 4.9449%, and the 30-year yield was little changed at 5.2835%. The 5s30s spread widened about 1 basis point to 46.42 basis points, while the 2s10s spread rose roughly 0.8 basis points to 20.88 basis points.