US yields drift higher in low-volume day after CME outage

U.S. Treasury yields rose on Friday amid low volumes after the U.S. Thanksgiving holiday and as CME Group, the world’s largest exchange operator, suffered an outage that halted futures trading. Global futures trading was disrupted for hours on Friday after the outage – one of CME’s longest in years – halted activity across stocks, bonds, commodities and currencies. Trading in foreign exchange, stock and bond futures had resumed by 1335 GMT after an 11-hour shutdown, LSEG data showed. “Markets are quiet, maybe partially due to this event, but I think it’s also the ‘long weekend’, and there’s no extra factors to disturb the weekend mood,” said Slawomir Soroczynski, head of fixed income at Crown Agents Investment Management. No economic data release was scheduled on Friday, and the U.S. bond market closed earlier at 2 p.m. ET (1900 GMT) due to the post-Thanksgiving holiday schedule.

Citi analysts said in a note early on Friday that U.S. Treasury bonds were barely moving after the CME outage slowed trading overnight, with activity running at only about a third of what is normal during Tokyo hours.

Yields then drifted higher during the rest of Friday’s session, partly due to investors having already locked in monthly gains, said Tom di Galoma, managing director at Minschler Financial Group.

“One of the reasons why the market has a tendency to trade off the last day of the month is because most of the buying has already been done … portfolios don’t do extensions the last day of the month,” said di Galoma.

The possibility of heavy corporate debt supply hitting the investment-grade credit market next week may have also contributed to Friday’s selling pressure, he said.

Banks tend to hedge rate risk on behalf of corporate clients by shorting Treasuries, ensuring debt issuers can lock in borrowing costs even if yields rise before deals are priced. STEEPER CURVE AHEAD OF FED MEETING Benchmark 10-year Treasury yields were last at 4.015%, about two basis points up from Wednesday. Two-year yields were at 3.491%, up about one basis point from the previous session. The closely watched yield curve comparing two- and 10-year yields steepened slightly to just over 52 bps, in anticipation of an interest rate cut by the Federal Reserve.

Rates futures traders on Friday were assigning an 87% probability to a 25 basis point cut at the Fed’s next rate-setting meeting on December 9-10, up from 83% on Wednesday, CME Group data showed.

“I think people are getting ready for a Fed rate cut and I think that’s happening with steepening trades, and people just hugging the front end and selling the back end of the market,” said di Galoma.

Treasuries posted gains across most maturities over the course of November, with 10-year yields down about 8 bps since the beginning of the month, while two- and five-year yields declined by 11 bps and 12 bps respectively.

On the other hand, 30-year yields closed the month up by nearly 2 bps.