As concerns over AI eased, risks related to French debt also faded, with the risk premium on French government bonds relative to German bunds narrowing, and the support that recent safe-haven flows had provided to US Treasuries weakened on Friday.
US Treasury yields rose across the curve by 3 to 5 basis points, with long-end bonds leading the decline in prices. Rising oil prices also added upward pressure on short-end yields. Just after 3 p.m. New York time, the 20-year US Treasury yield rose by as much as 5 basis points, leading losses among maturities on the day, while the 5s30s spread widened by about 1 basis point. The 10-year US Treasury yield closed around 4.99%, but remained near the lower end of this week's 4.94%-5.15% range.
In late trading, WTI futures rose about 4%, weighing on US Treasuries, while stock market losses were modest. As escalating violence in the Middle East threatened global supply, Brent crude broke above $116 per barrel. A rebound in chip stocks, combined with gains in French government bonds during the London trading session, eroded safe-haven demand for US Treasuries.
In the swaps market, the CME-LCH basis continued to retreat from multi-month highs, suggesting that asset managers may be unwinding pay-fixed flow as expectations for further yield increases diminish. Large block trades in ERIS futures on Friday included a 6,000-lot 5-year contract with a DV01 of $260,000, and a 4,500-lot 7-year contract, also with a DV01 of $260,000.
As of 4:17 p.m. New York time, the 2-year Treasury yield rose 4.6 basis points to 4.686%; the 5-year Treasury yield rose 4.3 basis points to 4.8138%; the 10-year Treasury yield rose 4.6 basis points to 4.9986%; the 30-year Treasury yield rose 4.7 basis points to 5.3275%; the spread between 5-year and 30-year Treasury yields widened by about 0.8 basis point to 51.37 basis points; and the spread between 2-year and 10-year Treasury yields widened by about 0.1 basis point to 31.05 basis points.
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