US Treasury Yields Fall as Oil Prices Stabilize on Diplomatic Efforts

US Treasury bond prices rose for the first time in three days on the 9th afternoon at 3pm Eastern Time, with short-term maturities showing relative strength. The 10-year Treasury yield fell 2.80 basis points to 4.5390%, while the 2-year yield dropped 3.50bp to 4.1640%, according to Yonhap Infomax overseas interest rate screens. The rally occurred as international oil prices stabilized after three days of sharp gains, with West Texas Intermediate crude falling 1.96% to $72.08 per barrel. CNN reported that Pakistan and Qatar, key mediators in the previous ceasefire memorandum of understanding between the US and Iran, are working to bring both sides back to the negotiating table, citing regional sources.

Treasury Yields Fall Across Maturities on Oil Price Stabilization

The 10-year Treasury yield traded at 4.5390% as of 3pm Eastern Time on the 9th, down 2.80 basis points from the previous trading day's 3pm benchmark. The 2-year yield, sensitive to monetary policy, fell 3.50bp to 4.1640% during the same period. The 30-year Treasury yield declined 1.10bp to 5.0530%. The spread between 10-year and 2-year yields widened slightly from 36.80bp to 37.50bp, indicating a bull steepening.

Treasury yields initially rose before the New York session opened as oil prices reversed higher intraday. Iranian media reported that the US attacked areas around the Bushehr nuclear power plant in southern Iran and key railway infrastructure, stimulating oil price gains. However, yields reversed direction downward as oil prices resumed their decline, with the downward momentum continuing through mid-afternoon trading in a nearly one-directional move.

Pakistan and Qatar Mediate US-Iran Diplomatic Efforts

CNN reported that Pakistan and Qatar, which played key mediating roles in the signing of the ceasefire memorandum of understanding between the US and Iran, are working to bring both sides back to the negotiating table, citing regional sources. West Texas Intermediate crude for delivery in the 8th month closed at $72.08 per barrel, down 1.96% from the previous session, halting two consecutive days of sharp gains.

Zach Griffiths, head of macro and investment grade strategy at CreditSights, stated that "there's a bit of fatigue in the (Treasury) selling pressure." He noted that "the 10-year has broken through 4.5%, and the 30-year is slightly above 5%," adding "we've been using those levels as milestones and thought they were attractive entry points."

30-Year Treasury Auction Sees Strong Demand at 5.058% Yield

The 30-year Treasury auction conducted at 1pm showed strong results. Following two consecutive days of 3-year and 10-year auctions, this marked the third consecutive auction where bonds were awarded at yields lower than market expectations. According to the US Treasury Department, the $22 billion 30-year Treasury reopening auction determined the issuance yield at 5.058%. This represents a 3.8bp increase from the previous month's auction yield of 5.020%, marking the highest level since 2007 and exceeding 5.0% for three consecutive months.

The issuance yield came in 0.3bp below the when-issued trading yield, indicating that the yield was determined lower than market expectations. The strong auction result contributed to the Treasury rally alongside the stabilization in oil prices.

Weekly Jobless Claims Drop to 215,000

US weekly initial jobless claims released in early morning trading showed a fourth consecutive weekly decline, recording the lowest level since the last week of last May. According to the US Department of Labor, seasonally adjusted initial jobless claims for the week ending on the 4th totaled 215,000, down 2,000 from the previous week. The prior week's figure was revised upward by 2,000, while the result came in below market expectations of 218,000.

Samuel Tombs, chief economist at Pantheon Macroeconomics, stated that "claims remain low and stable, and the increase over the past few months appears to reflect residual seasonality rather than rising labor market slack." He added that "layoffs are likely to remain low going forward."

According to CME FedWatch, the federal funds rate futures market priced in a 24.1% probability of a Federal Reserve rate hike this month as of 3:23pm New York time, down from the low 30% range in the previous session. The probability of a rate increase in September fell from the high 60% range to the low 60% range.

FAQ

What happened to US Treasury yields on the 9th? US Treasury yields fell across all maturities on the 9th afternoon at 3pm Eastern Time, with the 10-year yield dropping 2.80 basis points to 4.5390%, the 2-year falling 3.50bp to 4.1640%, and the 30-year declining 1.10bp to 5.0530%. This marked the first rise in Treasury prices after three days of decline.

Why did Treasury yields fall after rising earlier in the session? Treasury yields initially rose as oil prices reversed higher on reports that the US attacked Iranian infrastructure. However, yields reversed direction downward as West Texas Intermediate crude fell 1.96% to $72.08 per barrel, and CNN reported that Pakistan and Qatar are working to bring the US and Iran back to the negotiating table.

What were the results of the 30-year Treasury auction? The $22 billion 30-year Treasury reopening auction on the 9th at 1pm determined the issuance yield at 5.058%, which came in 0.3bp below the when-issued trading yield. This represented a 3.8bp increase from the previous month's 5.020% and marked the highest level since 2007, exceeding 5.0% for three consecutive months.