Yield curve inversion narrows, 10-year yields hit four-week high
Treasury yields hit four-week highs on Wednesday while two-year yields declined, as traders pared back on a popular trade that saw the closely watched two-year, 10-year yield curve reach its most inverted levels in 11 weeks.
Yields jumped on Tuesday after consumer confidence unexpectedly improved in May and the Treasury Department saw soft demand for auctions of two-year and five-year notes.
Minneapolis Federal Reserve Bank President Neel Kashkari also said the U.S. central bank could potentially hike interest rates if inflation fails to come down further.
But Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, says the move in Treasuries in large part reflects that the recent move in the yield curve got overextended.
«I would characterize the move more as a technical response to a 2s/10s reaching the depths of the inversion of the year, and then retracing,» Lyngen said. «We did have some lackluster receptions to the auctions, but I don't think that that's truly the defining event.»
The inversion in the yield curve between two-year and 10-year notes reached minus 49 basis points on Friday, the most inverted since March 12, according to data by LSEG. It came close to eclipsing the minus 50 basis point level, which would have been the most inverted since December.
The inversion narrowed to minus 37 basis points on Wednesday.
Two-year yields fell 1 basis point on Wednesday to 4.964%, and yields on 10-year notes climbed 5 basis points to 4.594%.
The Treasury on Wednesday will sell $44 billion in
