The US Treasury yield curve flattened on Tuesday, with mixed moves as short-end yields rose more than 1 basis point intraday while long-end maturities gained, pushing yields lower, leaving both the 2s10s and 5s30s spreads at intraday lows by the close.
Falling oil prices provided support for medium- and long-term US Treasuries. In the US Treasury options market, demand for downside protection persisted for a second consecutive day, with bets that the 10-year Treasury yield would rise to 5.3% by month-end.
Just after 3 p.m. New York time, the 2-year Treasury yield rose 1 basis point, while yields from the 7-year out to the long end fell 2 to 4.5 basis points; the 2s10s and 5s30s spreads narrowed by about 3.5 basis points and 4 basis points, respectively, from Monday's close. The 10-year Treasury yield ended near the middle of its intraday range at approximately 5.115%.
In early trading, Brent crude became the focal point. Oil prices swung sharply as traders digested developments in US-Iran negotiations, dominating the direction of US Treasuries. Money market pricing for Federal Reserve policy was largely stable intraday, with about 5 basis points of tightening expected for the October 28 meeting and roughly 25 basis points of tightening anticipated by year-end.
In the US Treasury options market, demand for the TY Week 5 104.00 put option continued, with approximately 100,000 contracts established over the past two trading sessions. In futures, early trading included a large purchase of the October SOFR-Fed Funds rate basis.
As of 3 p.m. New York time, US Treasury futures volume for the day was about 80% of the 20-day average. As of 4:42 p.m. Eastern time, the 2-year Treasury yield rose 0.6 basis points to 4.7783%; the 5-year Treasury yield fell 1.3 basis points to 4.9273%; the 10-year Treasury yield fell 2.9 basis points to 5.1105%; the 30-year Treasury yield fell 4.5 basis points to 5.422%; the 5-year and 30-year Treasury yield spread narrowed by about 3.3 basis points to 49.3 basis points; and the 2-year and 10-year Treasury yield spread narrowed by about 3.3 basis points to 33.02 basis points.
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