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UST CURVE SHOULD AGAIN SEE STEEPENIG POST MONTH END

ADMIN || 25th November 2025

A flatter Treasury yield curve to start the week will prove temporary, as demand for the front-end amid growing expectations for Federal Reserve easing counteracts month-end dynamics.

The curve tends to flatten at month-end as the US Treasury supply load leans towards shorter-dated issuance, which lifts yields in that part of the curve. Today’s $69 billion 2-year sale, which drew good demand despite a concession, will be followed by $70 billion 5s on Tuesday and $44 billion 7s on Wednesday amid a holiday truncated schedule.

Meanwhile, duration extensions that come around the end of the month tend to spur buying at the long-end. Bloomberg Indices calculates month-end extensions 0.11 years for Dec. 1. This is longer than the 12-month average of 0.08 years, meaning there might be more than usual demand.

Once supply and month-end is in the rear view, investors are likely to turn to the outcome of the Fed’s next meeting. After vanishing lastweek, odds for a rate cut next month are back up to ~80%, further affirmed by San Francisco Fed President Mary Daly’s backing. She said she supports lowering interest rates at the central bank's meeting next month because she sees a sudden deterioration in the job market as both more likely and harder to manage than an inflation flare-up. Daly sees the labor market as "vulnerable enough now that the risk is it'll have a nonlinear change", and believes an inflation breakout is a lower risk.

Those expectations are keeping a lid on two-year yields, though the curve has yet to fully reflect the likelihood of more easing.

The steepening trend remains intact after 2s10s and 5s30s have steepened in 11 of 15 days so far this month after investors seized on an opportunity at mid month to add to the popular bond trade and more recently.

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