US Bond Market: Short-End Supported by Oil Price Decline, Curve Steepening Continues

Short and intermediate maturities along the US Treasury yield curve staged a sharp rebound on Friday, trimming this week's losses, as dip buyers stepped in with yields sitting at multi-year highs.

Long-end yields, by contrast, edged higher on the day, with the 30-year yield breaking above 5.5%, driving further curve steepening as the 5s30s spread climbed back to 50 basis points.

Steepening trades in the futures market during the morning session set the tone for the day, with investors buying the belly of the curve and selling the long end, pushing 2-year and 5-year yields toward their intraday lows by the close.

Just after 3 p.m. in New York, 2-year and 5-year Treasury yields were down roughly 7 basis points from Thursday's close, while the 30-year yield was up about 1 basis point.

The 2s10s and 5s30s spreads widened by 4 basis points and 8 basis points, respectively, on the day.

The 10-year Treasury yield settled at around 5.16%, down about 3 basis points on the day but still near the upper end of this week's 4.92% to 5.225% range.

In the US morning session, a sizable curve-steepening block trade weighed on the long end, pushing the 5s30s spread to a fresh intraday high; the trade involved 5-year Treasury futures and ultra-long bond futures.

A subsequently released University of Michigan September consumer sentiment reading came in above expectations, further lifting Treasury yields.

Falling oil prices provided support to the short end on the day.

In late trading, WTI futures hovered near their intraday lows, down about 2%, amid signs that US-Iran negotiations over reopening shipping lanes in the Strait of Hormuz were making progress.

As of 3 p.m. in New York, US Treasury futures volumes were running about 40% above the 20-day average.

Ultra-long bond futures were the most active, with volume roughly 62% above typical levels.

As of 4:16 p.m. Eastern Time, the 2-year Treasury yield had fallen 6.7 basis points to 4.8578%; the 5-year yield had dropped 6.8 basis points to 4.9911%; the 10-year yield had declined 3.5 basis points to 5.1625%; the 30-year yield had risen 1.1 basis points to 5.4872%; the spread between 5-year and 30-year yields had widened by about 7.9 basis points to 49.43 basis points; and the spread between 2-year and 10-year yields had widened by about 3.3 basis points to 30.27 basis points.