Treasury outlook: yield curve hits flattest level in over a decade

The US Treasury yield curve hovered at its lowest level in more than a decade on Friday as short-dated yields rose more than longer-dated ones this week on expectations of further interest rate increases from the Federal Reserve. Minutes from the US central bank's policy meeting last month, which were released on Wednesday, showed most Fed officials were confident inflation is moving toward their desired 2-percent goal as the economy improves.
"It's been a relentless flattening move all week," said Gennadiy Goldberg, interest rate strategist at TD Securities in New York. Investors prefer longer-dated bonds over shorter-dated issues as the Fed raises short-term rates. Boston Federal Reserve President Eric Rosengren said Friday the central bank will probably need to raise interest rates three more times in 2018 in response to a robust economy, following a quarter-point rate hike in March.
The yield gap on five-year and 30-year Treasuries flattened 1.1 basis points to 36.30 basis points after touching 35.30 basis points, the flattest level since September 2007, Reuters data showed. Long-dated yields, in the meantime, notched higher on this week's Treasury supply, although the rise has been capped by safe-haven demand on worries about a US strike against Syria.
The US Treasury sold a combined $64 billion worth of three-year, 10-year and 30-year securities to fair demand this week. The Treasury released its quarterly survey to primary dealers where it asked whether it should sell more Treasury Inflation Protected Securities (TIPS). Overall yield levels were narrowly mixed as Wall Street stocks slipped, as quarterly results from large banks led by JPMorgan failed to stoke investor enthusiasm.
The yield on 10-year Treasury notes was down 1.1 basis points to 2.823 percent. Two-year Treasury note yields were up 1.7 basis points to 2.365 percent after hitting 2.373 percent earlier Friday, which was the highest since September 2008. On the data front, the government said domestic job openings fell to 6.052 million in February from a record high of 6.228 million in January. The University of Michigan said its reading on US consumer sentiment fell to 97.8 in early April, down from a 14-year peak of 101.4 in late March.