Safe-Haven Trades and U.K. Bond Rally Boost Treasuries, Swap Spreads Surge
U.S. Treasuries rose on Wednesday, supported by a rally in British gilts during the U.S. morning session and safe-haven demand. Bonds outperformed swaps after Federal Reserve Governor Stephen Milan commented on Trump’s deregulation agenda, pushing the long-end spread to multi-year highs.
The yield curve flattened after 3 p.m. New York time, with yields across maturities declining by 2 to 4 basis points and the 2s10s spread narrowing by approximately 2 basis points. The 10-year yield fell by 3.5 basis points to about 4.14%, while the equivalent British gilt yield declined by about 2 basis points more than the U.S. Treasury yield.
In early U.S. trading hours, a decline in U.S. equities provided support for Treasuries as funds rotated out of high-valuation tech stocks, causing Nasdaq to underperform. Risk-off sentiment also supported U.S. Treasuries, with investors anticipating a U.S. response to Iran’s turmoil, which pushed oil prices higher and drove gold prices to record levels.
As the rally in British gilts extended into the London close, gains in U.S. Treasuries widened. The rise in British gilts was driven by deteriorating growth prospects for the UK economy and strong demand for a £4.5 billion 2035 gilt auction.
Comments from Milan regarding deregulation triggered a widening of the long-end swap spread to its widest level since early 2023.
Corporate hedging flows also impacted the market. A total of seven issuers priced $12.65 billion in the U.S. investment-grade bond primary market, including a $6 billion, three-part transaction from JPMorgan.
By 4:52 p.m. Eastern Time, the yield on the 2-year U.S. Treasury note fell by 1.86 basis points to 3.5139%.
The yield on the 5-year U.S. Treasury note fell by 3.49 basis points to 3.7169%.
The yield on the 10-year U.S. Treasury note fell by 4.32 basis points to 4.136%.
The yield on the 30-year U.S. Treasury bond fell by 4.66 basis points to 4.7889%.
The yield spread between the US 2-year and 10-year Treasury bonds fell by 2.26 basis points to 62.002 basis points.
The yield spread between the US 5-year and 30-year Treasury bonds fell by 1.18 basis points to 107.018 basis points.
