US Treasury bonds closed higher on Friday, reversing a week-long sell-off that had pushed yields on all but the 30-year bond to their highest levels this year by Thursday.
Crude oil prices were the main driver of market movements this week, as rising oil costs led OIS contracts to reflect increased expectations for further interest rate tightening. Oil prices fell for the first time in six trading days on Friday.
Near the close, short-end yields fell by 2 to 3 basis points on the day, while yields on 10-year to 30-year bonds declined by less than 2 basis points. The 10-year yield ended near 4.675%, after briefly rising above 4.71% on Thursday, its highest level since January 2021.
As oil prices dropped on Friday, the decline in US Treasury yields was smaller than that seen in the UK and most Eurozone bond markets. UK gilt yields fell by 5 to 8 basis points at the close.
Benchmark oil prices fell on Friday but still posted a gain for the week. WTI crude dropped 3.1% to $89.31 per barrel, rising 8.3% for the week. Brent crude fell 3.9%, gaining 9.9% for the week.
The drop in oil prices eased market expectations for rate hikes by the Federal Reserve and the Bank of England. US rate traders continued to price in approximately 10 basis points of a rate hike by the Fed at the July 29 decision, while reducing bets on more than two rate increases through mid-2027.
Next week's Treasury auctions include $69 billion in 2-year notes and $70 billion in 5-year notes, concluding with $44 billion in 7-year notes on Tuesday.
Corporate bond issuance is expected to rebound significantly next week. This week's total issuance was $11 billion, less than half of dealers' forecast.
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