US Treasury debt prices traded narrowly mixed on Wednesday, allowing long-term bond yields to catch up to their short-dated counterparts for the first time in over a month.
Benchmark 10-year notes were off 1/32 in price and yielding 4.73 percent. Two-year notes added 2/32 for a yield of 4.73 percent from 4.76 percent.
That left the two maturities offering the same yield for the first time since consistent inversion began in late January.
Analysts have offered varying interpretations for the meaning and repercussions of an inverted yield curve, with some arguing it hints at an economic slowdown while others contend it has more to do with robust foreign demand for long-term bonds.
Whatever the appropriate explanation, the market now appeared to be betting that long-term rates would rise more quickly than their short-term counterparts - a trade known as a yield curve steepener.
"The yield curve is exhibiting a steepening bias," said Bernd Wuebben, senior market strategist at BNP Paribas.
A sharp sell-off in long-term debt that began last week helped undo the curve's inversion.
Investors cited many reasons for shunning government debt, with fears of tighter global monetary conditions ranking high among them.
The European Central Bank boosted rates last week and expectations were running high for the Bank of Japan to begin reining in its super-loose policy stance.
Domestically, there were also concerns that strong economic data could keep the US Federal Reserve raising interest rates for longer than originally anticipated.
A mass exodus from bets on an ever-flatter curve were also cited as culprits for the recent back-up in rates, which took benchmark yields to 22-month highs around 4.81 percent.
Analysts said yields would have a hard time breaking out of the new, higher range in yields, at least until Friday's payrolls report.
Median forecasts on Wall Street were for the creation of around 210,000 jobs in February, but estimates for this notoriously unpredictable data series varied widely.
Dealers would also keep a close eye on any declines in the unemployment rate, since the Fed has highlighted concerns about high resource utilisation - central bank-speak for an economy that could be operating at full capacity and therefore faces heightened inflation risk.
Mild selling in longer-dated debt persisted, with the 30-year bond falling 4/32 to yield 4.72 percent from 4.71 percent. Five-year notes were largely unchanged and yielding 4.75 percent.
A speech from Fed Chairman Ben Bernanke focused primarily on the banking sector and offered little fodder for bond investors.
St. Louis Fed President William Poole gave another speech filled with optimism on the economy, arguing a US housing slowdown would not undermine the economic expansion.
His argument appeared to have some foundation as US consumers filed more applications to refinance homes last week despite a surge in long-term interest rates to a three-month high, according to an industry trade group.
The Mortgage Bankers Association said its seasonally adjusted index of refinancing applications increased for a second consecutive week, rising 2.6 percent to 1,614.4 compared with 1,573.5 the previous week.
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