Treasury Prices Plunge Amid Rising Oil Prices and ISM Price Index Pressure
U.S. Treasury prices closed sharply lower on Monday, weighed down by a 6.3% surge in crude oil prices and a rise in the ISM Manufacturing Prices Paid Index for February to a multi-year high. The market also erased gains from February 27, when investor expectations of U.S. military action against Iran the following day and month-end index rebalancing had driven Treasury prices higher. In short-term interest rate futures, SOFR futures trading volumes were above average, reflecting reduced expectations for Federal Reserve easing.
During the U.S. afternoon trading session, yields rose across the board by 8 to 11 basis points, with bonds in the middle of the curve leading the declines, and the 5s30s yield spread narrowing by nearly 3 basis points.
The 10-year Treasury yield stood at approximately 4.04%, with an intraday high of 4.065%.
WTI crude oil futures continued to rise after settlement, surging more than 8% above Friday’s closing price; inflation expectations implied by U.S. Treasury Inflation-Protected Securities (TIPS) climbed, with the 2-year segment’s implied inflation expectations rising by about 7 basis points.
Trading volumes for SOFR futures across all maturities were above average as traders repriced to reflect smaller Federal Reserve easing this year.
OIS contracts corresponding to FOMC meeting dates reflected expectations of around 50 basis points of rate cuts by year-end, compared to 60 basis points at last Friday’s close; the timing for fully pricing in a 25-basis-point rate cut was also pushed back from July to September.
3:49 PM Eastern Time
The 2-year Treasury yield was at 3.4793%,
The 5-year Treasury yield was at 3.6155%,
The 10-year Treasury yield was at 4.0441%,
The yield on the 30-year government bond was reported at 4.6952%,
The spread between the 5-year and 30-year government bond yields was reported at 107.79 basis points,
The spread between the 2-year and 10-year government bond yields was reported at 56.28 basis points.
