US Treasury bonds faced downward pressure in early trading, with losses amplified by rising oil prices and climbing European bond yields. Demand in the options market further fueled bearish sentiment, as put options on 10-year Treasury bonds expiring in September continued to gain favor, serving as a hedging tool against potential larger selloffs in long-dated Treasuries.
Just after 3:00 PM New York time, US Treasury yields rose across the board by 4 to 6 basis points, with a bearish steepening of the yield curve driving the 2s10s spread wider by approximately 2.5 basis points intraday. The spread settled at about 45 basis points, near its session high. The yield on the 10-year US Treasury note increased roughly 6 basis points, closely mirroring the movement in European government bond yields.
Most of the decline occurred during the morning session, when WTI crude oil futures climbed on concerns over supply threats from the Persian Gulf to the Black Sea, prompting investors to reduce risk exposure ahead of the weekend. WTI crude oil futures rose nearly 2% in late trading.
In the US Treasury options market, demand for bets that yields on 10-year and 30-year bonds would rise further remained robust. A notable highlight on Friday was the large-scale purchase of put options on 10-year Treasury bonds expiring in September, with strike prices of 107.75 and 108.00.
As of 3:57 PM Eastern Time, the 2-year Treasury yield stood at 4.2725%; the 5-year yield at 4.4331%; the 10-year yield at 4.7224%; and the 30-year yield at 5.2616%. The spread between the 2-year and 10-year yields was 44.99 basis points, while the spread between the 5-year and 30-year yields was 82.68 basis points.
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