The U.S. Treasury yield curve steepened sharply on Thursday, with long-end yields continuing to surge while the 2-year yield edged only slightly higher by the close.

The 7-year note auction drew solid demand, with the high yield coming in less than 1 basis point above the when-issued yield, and bidding metrics were also relatively favorable, pushing the 2s/10s and 5s/30s spreads wider.

In the absence of buying interest, the weakness at the long end of the curve went unchecked, and the 30-year Treasury yield rose to its highest level since 2004.

Shortly after 3 p.m. New York time, Treasury yields were 1 to 7 basis points higher across the curve in a bear steepening move, with the 2s/10s and 5s/30s spreads widening by 5 basis points and 3.5 basis points on the day, respectively.

The 10-year Treasury yield traded near its intraday high late in the session, at one point climbing to 5.18%.

The 7-year note auction stopped 0.7 basis point above the when-issued yield, and the market reaction following the release of the auction results was muted.

The primary dealer allotment was 12.5%, higher than the previous auction; the indirect bidder allotment fell to 57.2%, offsetting the impact of the direct bidder allotment rising to 30.2%; the high yield was 5.085%, the highest on record for this maturity since issuance resumed in 2009.

In the morning session, Treasuries traded in a choppy fashion, with price action once again driven by volatile oil prices.

A Reuters report said the United States and Iran would discuss a phased agreement to reopen the Strait of Hormuz; on that news, Treasuries briefly recovered their losses quickly and also triggered the day's highest futures volume.

However, after the 7-year note auction concluded and as oil prices rebounded toward their intraday highs, the selloff at the long end of the curve intensified in the afternoon, with WTI crude up about 3% late in the session.

In SOFR options, flows included continued selling of June 2027 straddles, with premium on that position now exceeding $150 million over the past few weeks; in Treasury options, one investor sold a large amount of October 10-year Treasury puts, indicating they were closing out a trade established on Monday that earned $4 million in three days.