Treasury yields declined in US trading, retreating from year-to-date highs, as traders turned their focus to next week’s supply-and-demand picture.

The move was led by long-maturity tenors, with the US 30-year bond’s yield falling nearly nine basis points to 4.37 per cent, the lowest since Feb 13. It peaked Thursday (Feb 22) just below 4.5 per cent, the highest since Dec 1, as investors shovelled money into US equities and higher-yielding corporate bonds.

Long-dated Treasuries may benefit next week from the month-end rebalancing of bond indexes, in which debt issued during the month joins the index and debt maturing in less than a year drops out. The index change at the end of the last trading day of the month has the potential to spur buying by passive investors.

Meanwhile, next week’s Treasury auction calendar features record two- and five-year note sales, both on Monday, and a seven-year note sale on Tuesday. Normally spread out over three days beginning on a Tuesday, the auctions are compressed and begin earlier because of the need to settle them on Feb 29 with a day to spare.

Steeper declines for longer-dated yields drove them closer to shorter-dated ones, which have faced upward pressure this week from fading expectations for Federal Reserve interest-rate cuts. The 30-year yield came within 10 basis points of the yield on the five-year note – which traded at 4.27 per cent as of 1.30 pm New York time – while the 10-year yield was as much as 43 basis points lower than that of two-year Treasuries.

Yield-curve flattening was reinforced in Treasury futures, where for a second straight day, large block trades involving two-year notes and long-maturity Ultra Bond contracts were done concurrently. The paired trades are consistent with a wager on long-maturity cash yields moving further below short-maturity ones. BLOOMBERG

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