U.S. Treasury Market Pares Losses Triggered by Oil Surge as Iran-Israel Tensions Ease

U.S. Treasury bonds closed lower on Monday, but the losses were pared from their intraday depths as oil prices retreated from their session highs.

The escalation of hostilities between Iran and Israel initially drove oil prices to a session peak, but prices retreated as attacks ceased. The Treasury yield curve steepened, partially reversing the intense flattening triggered by the strong May jobs report last Friday.

Just after 3 p.m. New York time, the entire yield curve was up by 1 to 3 basis points, with the 2-year/10-year and 5-year/30-year spreads widening by 1.5 basis points and 2 basis points, respectively.

The 10-year yield hovered near 4.55%, after reaching an intraday high of 4.58%.

Canadian bonds underperformed, with the 5-year/30-year spread widening by 4.5 basis points. This came as Amazon announced plans for a C$14 billion investment-grade bond offering, the largest-ever corporate bond issuance denominated in Canadian dollars on record.

WTI crude oil futures settled 0.8% higher, after surging as much as 5.5% earlier in the session on the Iran-Israel conflict. The subsequent retreat followed Israeli Prime Minister Benjamin Netanyahu's statement that Israel would pause strikes on Iran if Tehran ceased fire.

The S&P 500 index closed up 0.3%, while the Nasdaq Composite gained nearly 0.9%, as renewed enthusiasm for artificial intelligence spurred bargain-hunting.

Around 4 p.m. Eastern Time, the U.S. 2-year Treasury yield rose 1.3 basis points to 4.1597%.

The U.S. 5-year Treasury yield increased by 2.3 basis points to 4.2903%.

The U.S. 10-year Treasury yield advanced 3.6 basis points to 4.5661%.

The U.S. 30-year Treasury yield climbed 4.7 basis points to 5.0425%.

The spread between U.S. 5-year and 30-year Treasury yields widened by approximately 2.5 basis points to 75.05 basis points.

The spread between U.S. 2-year and 10-year Treasury yields increased by about 2.5 basis points to 40.44 basis points.