US government bonds ended Tuesday with mixed results as the yield curve flattened.
Short-dated and intermediate maturities underperformed during the session, and the curve-flattening trend persisted after the 5-year note auction stopped slightly above the when-issued level.
Ahead of the Federal Reserve's rate decision on Wednesday, market volatility was limited, Treasury futures volumes remained well below typical levels, and options trading was also relatively quiet.
Shortly after 3 p.m. New York time, 2-year Treasury yields had risen about 2 basis points, while the 2s10s and 5s30s spreads narrowed by 1.2 basis points and 1 basis point, respectively, on the day. The 10-year Treasury yield was little changed around 4.99%.
The 5-year note auction drew strong bidding metrics. Primary dealers were allotted 10.6%, well below the recent average; indirect bidders' allotment rebounded to 60%, while direct bidders' share fell to 29.4%. The bid-to-cover ratio was 2.33x, above the 2.31x average of the previous six auctions. After the auction, the 5s30s spread continued to flatten.
During the US morning session, Treasury futures briefly rose on the back of falling oil prices but gave back gains after economic data was released. The data included solid durable goods orders with the prior month revised higher. Focus then shifted to the 5-year note auction, with traders adjusting positions for new supply.
As of 3:44 p.m. Eastern time, the 2-year Treasury yield was 4.7265%; the 5-year yield was 4.8315%; the 10-year yield was 4.9843%; the 30-year yield was 5.2975%; the 5s30s spread was 46.24 basis points; and the 2s10s spread was 25.36 basis points.
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