US Bond Market: Short-End Treasuries Lead Losses as Yield Curve Continues to Flatten

Deep News
1 hour ago

Treasury yields at the short end of the curve held their losses into the close, extending a flattening trend with a notable cumulative move over two sessions.

The US Treasury announced it would issue a license allowing Russian diesel into the market, which briefly pushed oil prices lower and helped short-end Treasury losses narrow somewhat.

Just after 3pm New York time, short- and intermediate-maturity Treasury yields rose by as much as 3.5 basis points, while the 2s10s and 5s30s spreads narrowed by 1.5 basis points and 3 basis points respectively during the session.

The 10-year Treasury yield ended the week at about 5.24%, near the low end of the week's 5.22%-5.36% range.

Late in the session oil prices briefly retreated, though this did not have a clear impact on Treasury price action; earlier, US President Donald Trump posted on Truth Social that Russia had agreed to supply more than 300,000 tons of diesel immediately.

Canadian bonds outperformed US Treasuries. Following a weaker-than-expected employment report, swap contracts showed diminished expectations for Bank of Canada rate hikes in coming months, with roughly 22 basis points of tightening now priced in by year-end; by contrast, markets expect the Federal Reserve to hike about 25 basis points by year-end.

In Treasury futures, volume as of 3pm New York time was about 70% of the 20-day average. Open interest in ultra-long Treasury futures contracts continued to decline, indicating asset managers kept unwinding positions at the far end of the futures curve.

As of 4:07pm New York time, the 2-year Treasury yield rose 3.1 basis points to 4.789%. The 5-year Treasury yield rose 3.4 basis points to 5.0229%. The 10-year Treasury yield rose 2 basis points to 5.2463%. The 30-year Treasury yield rose 0.2 basis points to 5.6024%. The spread between 5-year and 30-year Treasury yields fell about 3.2 basis points to 57.77 basis points. The spread between 2-year and 10-year Treasury yields fell about 1.2 basis points to 45.51 basis points.

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