Most yields little changed on caution ahead of year-end

US long-dated Treasury yields edged higher on Monday after US crude oil prices stabilized somewhat, leading to a marginal rise in inflation expectations, while other Treasury yields were little changed on caution ahead of year-end. US crude prices settled up 1 cent at $34.74 a barrel after hitting an 11-year low of $33.98. The stability suggested slightly higher inflation, which in turn boosted 30-year yields since those bonds tend to perform poorly during expectations of higher inflation. Yields move inversely to prices.
The modest rise in long-dated Treasury yields came after those yields hit a one-week low of 2.889 percent earlier in the session. US 10- and seven-year yields also hit one-week lows earlier of 2.172 percent and 1.979 percent, respectively. "If oil were going back down, everyone would be saying: 'okay, we're still in a deflationary environment,'" said Richard Schlanger, portfolio manager at Pioneer Investments in Boston. Long-dated Treasury yields tend to rise on expectations of higher inflation since inflation erodes the bonds' interest payouts.
Other Treasury yields were little changed since traders were cautious about making significant bets ahead of year-end because of the thin and potentially erratic trading environment, analysts said. Attention also generally shifted away from the timing of the Federal Reserve's next rate hike. "You are really starting to see year-end illiquidity starting to set into the market," said Justin Hoogendoorn, head of fixed income strategy at Piper Jaffray in Chicago. Through Friday, the Barclays US Treasury Index was up 1.3 percent for the year. The Barclays US Treasury: 1-3-Year Index was up 0.6 percent. The Barclays US Treasury: 25-plus-Year Index was mostly flat.
Analysts said a lack of top-tier US economic data also kept most yields generally unchanged from Friday's levels, while the aftereffects of the Fed hiking rates for the first time in nearly a decade last week were muted. Benchmark 10-year US Treasury notes were last up 2/32 in price to yield 2.190 percent, from a yield of 2.197 percent late on Friday. US 30-year Treasury bonds were last down 5/32 in price to yield 2.917 percent, from a yield of 2.908 percent late on Friday. US two-year Treasury notes were last mostly flat in price to yield 0.948 percent, from a yield of 0.960 percent late on Friday.