US Treasury bonds rallied on Tuesday following a weaker-than-expected July Producer Price Index (PPI) report. The bond market's advance was further fueled by a decline in oil prices, as traders assessed reports regarding shipping through the Strait of Hormuz. Longer-dated Treasuries underperformed, steepening the yield curve before and after the auction of new 30-year bonds, which saw the highest yield since 2001 for that maturity. Short-term rates indicated that the market has reduced expectations for Federal Reserve tightening, while the options market showed demand for hedges against rate cuts by the Fed and the Bank of England.

Just after 3:00 PM in New York, US Treasury yields fell by 4 to 7 basis points. The 5s30s spread widened by about 2 basis points, nearing its session high and reaching its steepest level since May. The 10-year Treasury yield dropped 6 basis points, close to its intraday low, outperforming comparable German and UK government bonds.

The yield curve remained steeper in the US afternoon. The 30-year bond auction, which offered $25 billion in new debt, had a high yield 0.4 basis points above the pre-auction trading level. Primary dealers took 11.5% of the auction, up from the previous sale, while indirect bidders' allocation fell to 66.8% and direct bidders' share rose to 21.6%. The bid-to-cover ratio was 2.39 times, compared to an average of 2.36 times for the past six new bond sales.

Earlier in the day, the weaker-than-expected July PPI data and falling oil prices pushed Treasury prices higher. West Texas Intermediate (WTI) crude oil futures settled 2.4% lower, hitting their lowest level this week.

On the short end of the curve, traders continued to sell October federal funds rate futures, a theme that has persisted throughout the week. Flows included a large block trade of 15,000 contracts; the short positions are betting that the Fed could raise interest rates at its September policy meeting.

In the SOFR and SONIA options markets, there was demand for March-dated bets on rate cuts.

As of 4:10 PM Eastern Time, the 2-year Treasury yield fell 5.5 basis points to 4.1466%.

The 5-year Treasury yield dropped 6 basis points to 4.3216%.

The 10-year Treasury yield declined 4.6 basis points to 4.6467%.

The 30-year Treasury yield fell 4 basis points to 5.2178%.

The spread between 5-year and 30-year yields rose about 2 basis points to 89.44 basis points.

The spread between 2-year and 10-year yields increased about 0.9 basis points to 49.8 basis points.