(Bloomberg) — Treasuries were under pressure in a holiday-shortened session as investors remained wary of parking cash in U.S. government debt maturing in a decade or more.
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Returns on moves led by long-term debt are higher on Tuesday, adding to an upward trend in the curve that has dominated market trading. The benchmark 10-year yield traded at 4.62%, up about 3 basis points, with the gap to two-year bonds widening as much as 28 basis points, near its steepest since 2022. Bonds are trading in a brief session at the US, with trading volumes around 50% of normal.
Prospects that the Federal Reserve will end its current easing cycle are higher than previously expected and that President-elect Donald Trump's agenda could fuel growth and inflation as well as potentially worsening of the fiscal background of the United States has weighed on long-term debt. Options traders bias those who will profit if a product moves further up.
“We're in an increasing rate now and it's really all coming from the longer end,” said Tom di Galoma, head of fixed income at Curvature Securities. “There is a lot of concern about what the next administration will do and how it affects where rates go. There could be some talk even in 2025 that the Fed needs to raise rates,” if inflation rebounds sharply.
The 10-year yield should continue to move up to the next support around the 5% level, with the two- to 10-year curve spread likely to reach 50 basis points sometime next year, di Galoma said.
The US Treasury market lost 1.8% this month, trimming this year's gains to just 0.3%, according to the Bloomberg index as of December 23. The complex was up about 4.6% this year through September 17, the day before the Fed began its cycle cut rates by shaving its policy benchmark down half a percentage point. Last year, Treasuries gained 4.1%, after posting losses of 12.5% in 2022 and 2.3% in 2021.
Treasuries continued lower after a second round of coupon debt issuance received good demand. The US Treasury sold $70 billion of five-year notes on Tuesday after its Monday auction of 2-year securities was met with robust demand. On Thursday, the Treasury will sell $44 billion of seven-year notes on Thursday.
The Securities Industry and Financial Markets Association recommends an early close of the cash bond market on Tuesday at 2 pm in New York, ahead of the Christmas Day holiday on Wednesday.