(Bloomberg) -- Treasuries rose as a selloff in US stocks and further declines in oil prices curbed wagers on Federal Reserve interest-rate increases over the coming year.
A global rout in shares of semiconductor makers has pulled US equity benchmarks from near record highs reached in the past month, stoking demand for haven assets including government bonds and the dollar.
Falling oil prices also ease pressure on the Fed to raise interest rates to fight inflation. Swap contracts priced in slightly lower chances of more than one hike in the next year, leaving about 45 basis points of tightening priced in by mid-2027.
"Steady declines in oil and a risk-off sentiment have Treasuries better bid today," said John Briggs, head of US rates strategy at Natixis. "It's a classic/typical reaction to weaker risk to see bonds see some of that flow, even if just short term."
The Treasury rally trimmed yields by at least two basis points, with short maturity tenors most sensitive to changes in the Fed's policy rate leading the move. The two-year yield was about four basis points lower ahead of the monthly auction of new two-year notes at 1 p.m. New York time.
The auction is still poised to draw the highest yield for a two-year offering since January 2025, at just under 4.20%, down from as high as 4.24% since the sale was announced last week. It comes nearly a week after Kevin Warsh's first press conference as Chairman on June 17 spurred a sharp increase in two-year yields as traders priced in more Fed tightening in response to rising inflation.
"I am interested in how the auction goes as it is what got hit hardest by Warsh's hawkish FOMC meeting," Briggs said. "Are people still wary of that, or is there value?"
The $69 billion two-year auction is the first of three fixed-rate Treasury debt sales this week, with five- and seven-year notes to be sold over the next two days.
Also, five- and 10-year Treasury yields Monday reached the highest levels in at least a week despite lower oil prices, a move traders viewed as likely related to hedging for a jumbo bond offering by SpaceX that's been slated for Tuesday and is expected to raise $20 billion to $25 billion.
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