US Treasury rally stalls as a flood of new investment-grade bonds hits the market—can the market absorb it?

⑴ The US Treasury market experienced volatility on Monday. In the early Asian session, bond prices retreated, but as Brent crude oil pulled back after hitting a new high of $106.50 per barrel, US Treasuries regained buying support and prices fluctuated higher. Earlier reports indicated that the US was seeking to form an alliance, including NATO, to protect the Strait of Hormuz, and had not launched strikes against the key oil storage facility on Iran's Kharg Island, easing extreme concerns over supply disruptions.⑵ However, the strongest buying appeared during the overnight session. Before the CME opened, as TYM (10-year US Treasury futures) triggered buy stop orders from 111-18 to 111-24, prices hit a high. But this rally faced resistance on Tuesday due to a flood of new investment-grade bond issuances, with eight new deals announced so far. The related rate-lock payment/selling operations suppressed further gains in bonds.⑶ Although the sell-off related to new bonds temporarily pressured the market, the subsequently released New York Fed manufacturing index unexpectedly fell into negative territory, triggering algorithmic buying programs. When the yields on 10-year and longer-term US Treasuries broke through resistance levels at 4.23% and 4.88% respectively, buying accelerated. Prices are currently hovering near the day's highs.⑷ Data shows yields across maturities generally declined. The 2-year US Treasury yield closed at 3.682%, down 5.2 basis points; the 10-year at 4.230%, down 5.5 basis points; and the 30-year at 4.865%, down 4.3 basis points. In terms of curve shape, the spread between the 2-year and 10-year narrowed to 54.77 basis points, while the spread between the 5-year and 30-year widened to 105.6 basis points, indicating that concerns over long-term inflation or supply pressures persist in the market.