Treasuries Yield Curve Flattens From 2017 High as Long End Leads

  • Gains held after strong demand for 3-year note auction
  • 10-, 30-year debt offerings are also ahead this week

HSBC's Major: The Myth of Fiscal Policy and Bond Yields

Treasuries were mixed in late trading Tuesday, leading the yield curve to flatten from its steepest levels of 2017. The 10-year yield touched a three-week low as oil fell, while short-term yields stabilized with stocks and the dollar-yen rate.

The 10-year yield was lower by 2 basis points at about 2.39 percent at 3:24 p.m. in New York, touching the lowest since Jan. 18. The 30-year yield was lower by 3 basis points. Its spread to the 5-year yield, which had traded at a 2017 high of 121.4 basis points during the session, fell to 117 basis points, a pattern supported by this week’s auction cycle.

  • $24 billion of 3-year notes were sold to begin the cycle, which continues with $24b of 10-year notes Wednesday and concludes with $15b of 30-year bonds on Thursday
  • “Steepeners will start to get unwound more aggressively” after the 3-year auction, Mischler Financial trader Glen Capelo said
  • Yields across the curve reached lowest levels of the session after the 3-year auction met strong demand
  • The auction, which strategists said stood to benefit from political concerns and lower FX hedging costs for foreign buyers, was awarded at 1.423% vs 1.429% yield at 1pm ET, sixth of past seven 3Y auctions to stop through, according to Stone & McCarthy
  • 34.7% awarded to primary dealers was lowest since August as indirect award increased to 57.2%, highest since May, direct award to 8.1%
  • Session low yields roughly coincided with lows for U.S. equities, oil and the dollar-yen rate (U.S. trading)
    • Energy shares led S&P 500 off its highs as WTI crude traded below $52 for first time since Jan. 19; TIPS breakevens extended their retreat from last week’s multi-year highs, with 5-year breakeven below 2% for first time since Jan. 24
  • Gains were subsequently pared, led by short maturities, further flattening the curve
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