U.S. Treasury prices fell to intraday lows in late Friday trading, with yields from the five-year note to the long end of the curve rising more than 10 basis points. The decline was driven by a sell-off in UK government bonds and continued increases in oil prices, as investors grew concerned that disruptions to energy shipments through the Strait of Hormuz could heighten inflation risks. Political uncertainty further intensified the selling pressure, led by UK gilts, supporting higher yields on both sides of the Atlantic. A hawkish shift in Federal Reserve swap pricing indicated markets now fully price in a 25-basis-point rate hike by the March policy meeting.
Just after 3 p.m. New York time, intermediate maturities led the decline, with yields rising as much as 12 basis points on the day. This pushed the 2s10s spread near its intraday high, widening by about 5 basis points to around 51 basis points. The yield on the 10-year U.S. Treasury note briefly climbed to 4.598%, its highest level since May 2025, while the 30-year yield approached 5.13%.
Pricing in overnight index swaps tied to Federal Reserve meeting dates suggests the market expects the policy rate to peak around the June 2027 Fed meeting, with about 34 basis points of additional tightening anticipated. A 25-basis-point hike is fully priced in for the March meeting. Expectations for total rate increases in the current year have risen to approximately 16 basis points, up from 14 basis points at Thursday's close.
UK government bonds led the global bond market lower, with the UK yield curve steepening sharply in a bearish move as yields rose between 11 and 19 basis points. Political uncertainty added to the market's weakness after Manchester Mayor Andy Burnham secured a potential future path to challenge Prime Minister Keir Starmer.
WTI futures settled near their session highs, up roughly 4% from Thursday's close, supporting the upward pressure on yields.
As of 4:18 p.m. ET, the 2-year Treasury yield was up 6 basis points at 4.0772%. The 5-year Treasury yield was up 11.1 basis points at 4.2633%. The 10-year Treasury yield was up 11.9 basis points at 4.6003%. The 30-year Treasury yield was up 9.9 basis points at 5.1251%. The yield spread between 5-year and 30-year Treasuries narrowed by about 1.2 basis points to 86 basis points. The yield spread between 2-year and 10-year Treasuries widened by about 6.3 basis points to 52.1 basis points.
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