US yield curves have steepened as short-dated rates fell and long-dated yields rose. Front-end rates declined after comments from Kevin Hassett, Director of the National Economic Council, suggested smaller job numbers linked to population trends, ahead of delayed January jobs data.<\/p>\n
Long-end yields increased on supply concerns and questions about foreign demand for US Treasuries. Chinese regulators warned domestic financial institutions about high US Treasury holdings, adding to concerns about reduced overseas buying as US deficits remain high.<\/p>\n
Bond supply is also affecting longer maturities. The US Treasury is auctioning new 3-year, 10-year and 30-year bonds this week.<\/p>\n
Further supply came from large technology company issuance in dollars and sterling. These deals extended to 40-year maturities in US dollars and 100-year maturities in sterling.<\/p>\n
We are seeing a noticeable steepening in the US yield curve as we move through February. Front-end yields are being pushed down by signs of a cooling economy, while the long end is struggling with massive government supply. This dynamic echoes the situation we saw play out in late 2025.<\/p>\n
The recent jobs report for January 2026, which came in below expectations at 195,000, has confirmed the cooling trend we observed last year. This has traders pricing in a more dovish Federal Reserve, potentially leading to rate cuts later this year. Consequently, derivatives tied to short-term rates, like SOFR futures, are reflecting these lowered policy expectations.<\/p>\n
At the same time, the long end of the curve is facing pressure from concerns about supply and demand. Looking back at the Treasury’s data from late 2025, we saw foreign buying failed to absorb the record-breaking issuance, a trend that is a growing concern. With the Treasury set to auction over $120 billion in notes and bonds in the coming weeks, this imbalance is pushing longer-term yields higher.<\/p>\n
For derivative traders, this environment strongly suggests positioning for a continued steepening of the curve. A straightforward strategy involves using Treasury futures to go long the front-end (like the 2-year note) while simultaneously going short the long-end (like the 10-year or 30-year bond). This trade profits directly if the yield spread between them continues to widen as we expect.<\/p>\n
We should also anticipate a rise in interest rate volatility as these opposing forces play out. Traders can look at buying options, such as puts on long-bond futures, to protect against a sharp upward move in long-term yields. This also means keeping a close eye on instruments like the MOVE index, which we’ve seen climb from its 2025 lows in recent months.<\/p>\n
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