US Treasury Yields Fall After Strong 30-Year Bond Auction

US Treasury yields declined on Thursday, with the benchmark 10-year yield down 5 basis points to 5.227% after reaching a 24-year high the previous day. The 30-year yield also fell, dropping 5.9 basis points to 5.602%. Short-term rates slipped as well, with the 2-year yield easing 1.3 basis points to 4.751%.

The rally was attributed to a solid 30-year auction that priced at a yield of 5.618%, below the level expected at the bid deadline. The bid-to-cover ratio of 2.54 exceeded the average of the last six auctions, and indirect bids, largely from foreign investors, accounted for 72.3% of the issue, above the recent average.

"The peak was probably the 5.30% level, maybe even lower and we believe we have already seen peak pessimism about Fed rate increases," said Jay Hatfield, chief executive officer of Infrastructure Capital Management. He added that the Federal Reserve is likely to raise rates only once in the current cycle.

Fed Governor Christopher Waller indicated that additional rate hikes may be required to bring inflation down to the 2% target, but noted there is flexibility on the timing, a comment that lifted 2-year yields.

The yield curve narrowed, with the spread between 2-year and 10-year yields shrinking to 47.1 basis points from 51.4 basis points earlier in the day. Oil prices continued to influence Treasury markets; Brent crude settled at $103.92 per barrel and US crude futures at $91.17, both up over 3% amid concerns about Middle East supply.

"The market remains content to trade the energy shock solely from the perspective of the inflationary implications, largely ignoring any potential demand destruction that could follow," wrote Ian Lyngen, head of US rates strategy at BMO.