US Bond Market: Long-End Treasuries Fall as Crude Oil Surges in Afternoon Trading

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11 hours ago

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US Treasuries ended Friday mixed, with long-end yields rising during the day after crude oil prices surged in the afternoon US trading session, with Brent crude touching $110 per barrel for the first time since May.

The US Treasury's release of primary dealer survey questions for the November 4 quarterly refunding also contributed to curve steepening; some dealers had previously expected the survey might mention the possibility of reducing long-end Treasury supply.

Thereafter, US Treasuries underperformed swaps, with swap spreads narrowing across all tenors during the day. Just after 3pm New York time, long-end yields were still up 2-3 basis points, while short-end yields fell about 1 basis point; the 2s10s and 5s30s curves widened by 4 basis points and 2 basis points respectively during the day, both near intraday highs.

WTI crude oil futures rose as much as 3.9%, with the settlement price up 3.5%. Oil prices received a boost after US lawmakers introduced a bill aimed at blocking President Donald Trump's plan to allow Russia to release hundreds of millions of barrels of diesel into the market.

The primary dealer survey questions were published at noon New York time, when the oil price rally was accelerating. The survey broadly asked what adjustments to auction sizes should be considered in the future, but did not specifically mention long-end products, nor did it hint that the 20-year Treasury bond was being considered for elimination, as some dealers had speculated.

As of 3pm, US Treasury futures volumes were near the 20-day average; a large block sale of ultra-long 10-year Treasury futures appeared in the early US session, sized at $505,000/DV01.

As of 4:12pm New York time, the 2-year Treasury yield fell 2.4 basis points to 4.7146%; the 5-year Treasury yield rose 0.3 basis points to 4.8808%; the 10-year Treasury yield rose 2.5 basis points to 5.0832%; the 30-year Treasury yield rose 2.4 basis points to 5.4297%; the spread between 5-year and 30-year Treasury yields widened by about 2.2 basis points to 54.83 basis points; the spread between 2-year and 10-year Treasury yields widened by about 5.1 basis points to 36.64 basis points.

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