US yield curve flattest since 2007

12 Jul, 2018

Yields on shorter-dated Treasuries hit session highs following a weak auction of 3-year notes that left the yield curve at its flattest in over a decade. The auction for $33 billion in 3-year notes in the afternoon had the lowest bid-to-cover ratio since April 2009, and primary dealers took more than half of the 3-year supply.
"Threes do look kind of rich on the curve, so it makes sense that we saw a little bit of a tail following a concession going into the auction," said Subadra Rajappa, head of US rates strategy at Societe Generale in New York. The yield curve between 5-year to 30-year Treasuries fell below 20 basis points, the tightest spread since 2007.
An auction of $22 billion in 10-year notes is scheduled for Wednesday and $14 billion in 30-year bonds will be offered on Thursday.
The relatively soft demand for 3-year notes "doesn't particularly bode well" for the longer-dated Treasuries auctions, said Thomas Simons, money market economist at Jefferies & Co in New York.
Yields on 3-year notes rose to 2.686 percent after the auction.
Benchmark U.S 10-year notes yielded 2.871 percent at 2:56 p.m. EST (1856 GMT), up from 2.860 percent late Monday.
Analysts said they would be watching closely the release of core CPI inflation data on Thursday.
Economists polled by Reuters expect year-over-year core inflation to be 2.3 percent for June, compared with 2.2 percent in May. Lower-than-expected wage growth from last week's US jobs report tempered expectations for inflation.

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