The U.S. Treasury market exhibited a notable bear-flattening trend. As oil prices continued to surge, traders swiftly unwound Federal Reserve rate-cut premiums priced into the short end of the yield curve. Strong demand for a $22 billion 30-year bond auction, coupled with inflows into flattening trades in the futures market, further contributed to a significant narrowing of the intraday yield curve and helped cap the rise in long-end yields.
Shortly after 3:30 p.m. New York time, short-term Treasury yields rose approximately 10 basis points, driving the 2s10s and 5s30s spreads to narrow by 6 basis points and 7 basis points, respectively, compared to Wednesday's close. The yield on the 10-year U.S. Treasury note was around 4.26%, up 3 basis points on the day.
Movements at the short end of the curve were particularly pronounced as traders rapidly scaled back bets on rate cuts within the year. Market expectations for Fed rate cuts by the December meeting fell to just 18 basis points, down from 29 basis points at Wednesday's close. The first fully priced-in 25-basis-point rate cut was pushed back to the middle of next year.
Robust demand for the 30-year bond auction also intensified flattening pressure on the curve. The 2s10s spread approached its flattest level of the year during late trading. The auction's high yield came in below pre-auction trading levels. Primary dealers were awarded 9.4% of the issuance, up from the record low seen last month. Direct bidders took 27.2%, while indirect bidders were allotted 63.4%.
As of 4:55 p.m. New York time: - The 2-year Treasury yield stood at 3.7386%. - The 5-year Treasury yield was at 3.8661%. - The 10-year Treasury yield was at 4.2609%. - The 30-year Treasury yield was at 4.8816%. - The spread between 5-year and 30-year yields was 101.19 basis points. - The spread between 2-year and 10-year yields was 51.61 basis points.
Comments