Investors flocked to US Treasuries for safety on Friday, pushing yields lower across the board. Heavy corporate bond issuance scheduled for next week led to a significant tightening in swap spreads. A series of bullish hedging trades pushed call option skew to its highest level this year. Uncertainty lingered over the outcome of US-Iran talks, while equities declined amid investor unease about the disruptive potential of artificial intelligence and concerns in the private credit market. Month-end demand also played a role, likely providing an additional layer of support for government bonds.

Late in the US session, the 2-year yield fell to its lowest level since 2022, and the 10-year yield touched its lowest point since October.

Shortly after 3 pm New York time, yields remained near their daily lows, with the entire curve down approximately 3 to 5 basis points compared to the previous session. Front-end and intermediate-term bonds led the gains.

Overnight index swaps linked to Federal Reserve meetings showed dovish movement: the market fully priced in a 25-basis-point rate cut timing, shifting expectations from the September FOMC meeting forward to the July meeting. The total amount of rate cuts priced in for the year increased to around 60 basis points, up from 55 basis points the previous day.

Equities declined on Friday. WTI crude oil futures rose nearly 3% on the day as investors weighed the risk of a US strike on Iran over the weekend.

As of 3:07 pm ET, the 2-year Treasury yield stood at 3.377%, the 5-year yield at 3.512%, the 10-year yield at 3.9602%, and the 30-year yield at 4.6316%.

The yield spread between 5-year and 30-year Treasuries was 111.79 basis points, while the spread between 2-year and 10-year yields was 58.31 basis points.