Following the long weekend, U.S. Treasury yields opened sharply lower on Tuesday and remained well below Friday's closing levels by the end of the session, even as renewed U.S.-Iran tensions cast a shadow over prospects for an agreement to reopen the Strait of Hormuz. The $69 billion 2-year Treasury note auction showed steady demand, with the awarded yield matching the pre-issuance trading level, having a limited impact on intraday price movements. Market attention now turns to Wednesday's $70 billion 5-year note auction.
In the Treasury options market, there was demand for structures that sell volatility, alongside notable buying of put options on 5-year and 10-year Treasuries, positioning for higher yields in the coming weeks.
Shortly after 3 p.m. New York time, U.S. Treasury yields were down 4 to 8 basis points from Friday's close, led by declines in the belly of the curve. This pushed the 5s30s spread wider by approximately 3.5 basis points on the day. The yield on the 10-year Treasury note hovered around 4.49%, having moved off its Asian-session intraday low of about 4.47%.
Oil prices rebounded on Tuesday but remained below Friday's closing levels. The S&P 500 index advanced, led by chipmakers, helping the Nasdaq 100 index outperform.
The $69 billion 2-year Treasury auction was steady. The awarded yield was in line with the pre-issuance trading level. Primary dealers took down 12.3% of the offering, slightly above the previous auction. Direct bidders' share fell to 30.1%, while indirect bidders' share rose to 57.6%.
Notable flows in Treasury options included an early-session sale of $16 million in rate volatility via a September at-the-money straddle, alongside substantial buying of put options on 5-year and 10-year Treasuries, betting on rising yields over the next few weeks.
As of 3:51 p.m. ET: - The 2-year Treasury yield fell 7.4 basis points to 4.0466%. - The 5-year Treasury yield fell 7.5 basis points to 4.1826%. - The 10-year Treasury yield fell 6.5 basis points to 4.4925%. - The 30-year Treasury yield fell 3.8 basis points to 5.0263%. - The 5-year to 30-year Treasury yield spread widened by approximately 3.6 basis points to 84.19 basis points. - The 2-year to 10-year Treasury yield spread widened by approximately 0.9 basis points to 44.38 basis points.
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