Bullish gap openings have sent yields back into Thursday’s ranges, the 5-year even back into the gap it left Thursday morning. Treasuries closed mixed on Friday as the yield curve, which has been in a flattening cycle all year, steepened a bit just as it’s doing this morning.
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The flattening trade accelerated the past several weeks as surging energy prices have dashed hopes for rate cuts any time soon. Friday’s steepening was most evident in the afternoon when at 1:00 the 5-year yield was at 4.070, which is exactly where it closed, while at 1:00 the 30-year yield was 4.946 but it closed at 4.982.
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Whether Friday was just a bump in the road the curve has been on recently remains to be seen. The long-term trend has been to a steeper curve. How could it not have been after having been inverted for so long?
History says from a significant inversion an all-time steep yield curve will follow.
I guess we’ll find out if that happens again. I had been highlighting support for the 30-year at 4.990/5.004 in my key levels for quite a while. Any technician would since there have been three rallies of between 40 and 75 bps from within that small range just in the past year and even if there hadn’t been, any round number can be viewed as psychological support and treasuries began to recover on Friday after the 30-year yield reached 4.999.
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The 10-year yield also held at obvious support so heading into the week with the labor market reports, absent a major surprise I would view these bounces as likely corrective with targets beginning around 3.93/90, 4.31/28, and 4.87/86.
I’ve now got a rather rudimentary Excel chart of the spread between a theoretical par coupon Fannie Mae and the 3-year treasury yield going back to early 2024. I’d hoped to find some correlation to something, perhaps the yield curve, but I haven’t yet.