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(Bloomberg) — Treasuries were under pressure in a shortened holiday session as investors remain wary of parking cash in U.S. government debt maturing in a decade or more.
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Longer-term debt yields led the higher moves on Tuesday, adding to a curve-steeping trend that has dominated trade in the market. Benchmark 10-year yields traded at 4.62%, up about 3 basis points, with the two-year bond gap widening to 28 basis points, near its highest level since 2022. Bonds trading in a shortened US session, with trading volumes around 50% of normal.
The prospect that the Federal Reserve will end its current easing cycle at a higher level than previously expected and that President-elect Donald Trump’s agenda may trigger growth and inflation, as well as potentially worsen the U.S. fiscal environment , have weighed on long-term debt. Options traders are biasing bets on which will make a profit if yields rise further.
“We’re now in a rising rate environment and it’s really all coming from the longer end,” said Tom di Galoma, head of fixed income at Curvature Securities. “There’s a lot of concern about what the next administration will do and how it will affect where rates go. There could even be talk in 2025 of the Fed needing to raise rates,” if inflation picks up sharply.
Di Galoma said the 10-year yield should continue to move towards the next support around the 5% level, with the two- to 10-year curve spread likely to reach 50 basis points next year.
The US Treasury market lost 1.8% this month, paring gains this year to just 0.3%, according to a Bloomberg index through Dec. 23. The composite was up about 4.6% this year through Sept. 17, the day before the Fed. began its cycle of rate cuts by reducing its policy benchmark by half a percentage point. Last year, Treasuries gained 4.1%, after posting losses of 12.5% in 2022 and 2.3% in 2021.
Treasuries remained lower after a second round of coupon debt offerings received good demand. The U.S. Treasury sold $70 billion in five-year notes on Tuesday after its Monday auction of 2-year notes was met with strong demand. On Thursday, the Treasury will sell $44 billion in seven-year notes on Thursday.
The Securities Industry and Financial Markets Association is recommending an early close of the cash bond market on Tuesday at 2pm in New York, ahead of the Christmas holiday on Wednesday.
