Stocktwits Weekly Spread: What Shaped Treasury Yields And The Dollar This Week

An accelerating rout in AI stocks sent the U.S. dollar to its worst weekly drop in a month while Treasuries resumed their slide for the week ending Oct. 16.

• The U.S. dollar index dropped 0.2% on Friday, completing its sharpest weekly decline since early September as traders lowered probabilities of an October rate hike to 20%.
• The U.S. Treasury Department released primary dealer survey questions that omitted direct references to cutting 20-year bond issuances or scaling back long-end debt auctions. 
• The yield curve flattened further this week, with 10-year yields falling about 16 basis points over the previous week.

U.S. government bond prices retreated, and the dollar suffered its sharpest weekly decline in over a month during the week ending Oct. 16, as fixed-income investors digested ambiguous signals from Kevin Warsh on the future course of interest rates. 

Federal Reserve Chairman Kevin Warsh declined to provide forward guidance on interest rate trajectory during remarks at the International Monetary Fund meetings in Bangkok. Warsh's silence led traders to pare back probabilities of an October rate hike to 20%. 

"Warsh offered no guidance, which while it should be expected of him at this point, the market is taking it as a signal that the October Fed meeting is likely a no go," Noah Buffam at CIVB Capital Markets told Bloomberg in an interview. 

Moreover, adding to the dissent among fixed income traders, the U.S. Department of the Treasury did not provide information or explicit proposals to reduce long-duration debt issuances or eliminate 20-year auctions, which primary dealers were expecting.

The 30-year U.S. Treasury yield slipped 17 basis points from the previous week to 5.43%, while the 10-year yield eased slightly to 5.08% and 2-year yields settled at 4.72% for the week ending Oct. 16.

The spread between the U.S. 10-year yield and the U.S. 2-year yield ticked lower to 0.37% in the week, from 0.44% a week ago.

The iShares 20+ Year Treasury ETF (TLT) ended the week 2.7% higher, while the shorter-duration iShares 1-3 year ETF (SHY) added about 0.2%. The slight recovery in the shorter-duration bond ETF may reflect easing short-term inflation pressure; however, markets still factor in one more rate hike in December.  

Retail sentiment on TLT and SHY was ‘bullish,’ with ‘high’ message volumes.

Asset / Benchmark	Weekly Close	Weekly Change
U.S. Dollar Index	101.78	-0.3%
U.S. 2-Year Treasury Yield	4.72%	-7 bps
U.S. 10-Year Treasury Yield	5.08%	-16 bps
U.S. 30-Year Treasury Yield	5.42%	-17 bps
U.S. 10Y2Y Yield Spread	Flattening curve	-

Yield Curve & Global Sovereign Markets 

Yield curve flattening trends persisted as short-duration yields outpaced gains at the long end, keeping the gap between 2-year and 10-year Treasuries tightly compressed.

The bond rout expanded across international sovereign bond markets. European government bond yields rose alongside U.S. peers, with German Bunds, UK Gilts and French bonds all remaining elevated amid soaring inflation pressures. 

Greenback & Economic Data Roundup

The Dollar Spot Index slipped 0.2% on Friday, snapping a multi-week rally and registering its worst weekly performance since September 4. The dollar fell against all major developed market currencies, allowing the euro to break a five-week losing streak. 

Hotter-than-expected September CPI data and solid retail sales initially supported rate-hike expectations earlier in the week, but investors questioned the durability of the artificial intelligence boom that has supported U.S. growth, putting pressure on the greenback. 

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