Treasuries Rally as Decline in Crude Oil Curbs Inflation Wagers

(Bloomberg) -- Treasuries extended gains, finishing close to session highs, as declining oil prices curbed inflation expectations.

The benchmark 10-year U.S. yield was down about two basis points to 2.54 percent at 4:22 p.m. in New York, according to Bloomberg Bond Trader data. The yield curve from five to 30 years flattened, erasing earlier steepening, as longer-maturity bonds led gains. Oil prices slipped following a report showing U.S. crude stockpiles rose. The 10-year break-even rate, which reflects investor expectations for average annual inflation over the next decade, erased its climb from earlier on Wednesday.

• In U.S. economic data, November existing home sales stronger than forecast; gross domestic product, personal consumption and durable goods among figures released Thursday; new home sales and University of Michigan sentiment on Friday
• Late curve flattening move, paring early steepening, was exacerbated as futures volumes spiked to highest of the session, knocking 30-year through 3.12 percent; the curve from five to 30 years flatter but within Tuesday’s range
• Treasury futures volumes otherwise muted, by 3 p.m. New York time, five-year, 10-year contracts running at around 50 percent of average 30-day volumes
• Notable options activity included return of Treasury 10-year March calls program buyer, this time in 126 strikes and considerable rise in volumes on 10-year February 126 calls on iShares 20+ Year Treasury Bond ETF options
  • Structure targets 10-year yields to fall around 35 basis points from current level, around 2.2 percent

To contact the reporters on this story: Brian Chappatta in New York at bchappatta1@bloomberg.net, Edward Bolingbroke in New York at ebolingbrok1@bloomberg.net. To contact the editors responsible for this story: Boris Korby at bkorby1@bloomberg.net, Mark Tannenbaum