U.S. Treasury bonds closed lower on Wednesday as a rise in crude oil prices erased the positive impact of favorable May CPI data and strong demand at a 10-year Treasury auction. Benchmark oil prices surged more than 3% following a threat from U.S. President Donald Trump to launch an attack on Iran soon.
Shortly after 3 p.m. New York time, Treasury yields were up 1 to 3 basis points for the day, retreating from intraday highs, with the yield curve steepening. The 2s10s spread and the 5s30s spread widened by 1.5 basis points and 1 basis point, respectively, at the close.
West Texas Intermediate (WTI) crude futures settled 2.1% higher, while Brent crude gained 1.8%, following Trump's threatening remarks and another significant drawdown in U.S. domestic inventories.
Treasuries found initial support during early trading from inflation data, as the report showed the core CPI rise for May was lower than expected. Most bond yields hit their session lows in the subsequent half-hour. However, Treasuries were unable to maintain their gains as oil prices accelerated their ascent around midday.
Nevertheless, robust demand at the U.S. 10-year Treasury note auction helped limit the decline in bond prices. The auction's high yield came in below its pre-issuance trading level, with strong demand metrics. Primary dealers were awarded 9.5%, the lowest share since January, while indirect bidders' share increased to 78.2%, the highest since September. Direct bidders' share fell to 12.3%.
As of 4:01 p.m. ET, the 2-year Treasury yield stood at 4.1328%.
The 5-year Treasury yield was at 4.2674%.
The 10-year Treasury yield was at 4.5463%.
The 30-year Treasury yield was at 5.0272%.
The yield spread between 2-year and 10-year Treasuries was 41.14 basis points.
The yield spread between 5-year and 30-year Treasuries was 75.8 basis points.
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