Bond Report: Treasury yields snap 5 quarters of declines

Treasury yields finished the second quarter of 2015 with the largest quarterly yield gain since December 2013, snapping a five-quarter losing streak.

Yields, which move inversely to prices, have been rising for the past three months, with June’s monthly yield gain being the highest since February.

The rising trend has been a function of the market’s anticipation for the first interest rate hike in nearly a decade, along with a spillover of rising interest rates in the eurozone.

On Tuesday, however, Treasury yields finished flat after falling on Monday, as the market resumed a flight-to-safety rally sparked by fears of a Greek collapse.

The S&P 500 also ended Tuesday’s choppy session slightly higher, but deep losses during the previous trading day resulted in monthly and quarterly losses for the main indexes.

The yield on the 10-year Treasury TMUBMUSD10Y, +1.28%  rose 0.2 basis point to 2.335% on Tuesday, after shaving off 14.7 basis points on Monday, the largest one-day decline in over three years, according to Tradeweb. The yield gained 40.5 basis points over the quarter and 23.8 basis points over the month of June.

The two-year yield TMUBMUSD02Y, +0.61% was unchanged on Tuesday and rose 8.2 basis points over the quarter to 0.625%. The yield on the 30-year TMUBMUSD30Y, +0.84% Treasury rose 2.2 basis points to 3.121%.

Earlier on Tuesday, last-minute efforts for a deal between Greece and its creditors resulted in some selling in the Treasury market, driving yields higher.

Greece missed its 1.54 billion euro ($1.71 billion) payment to the International Monetary Fund on Tuesday — the same day that its bailout program also expired, while the country prepared for a referendum Sunday on whether to accept the latest creditor proposal.

See: Greek debt crisis: Latest news.

Meanwhile, in the eurozone, yields also turned lower, after Monday’s rally that sent the yield on the German 10-year TMBMKDE-10Y, -3.88% known as the bund, tumbling 12.5 basis points. On Tuesday, the bund yield declined 2.3 basis point to 0.769%.

Meanwhile, electronic-trading platform Tradeweb halted trading in a number of Greek government bonds after the Greek 10-year yield rose 440.1 basis points to 15.215% on Monday. Greek stock markets also have been closed since Monday and will likely remain closed until after the referendum.

On the U.S. economic front, a home-prices index came in lower than expected on Tuesday, indicating that home prices continue to rise across the country, but the pace isn’t accelerating.

The Chicago PMI release disappointed, indicating a slight contraction in manufacturing conditions, while a consumer confidence index came in above estimates.

As we get closer to the end of this holiday-shortened week and the closely watched official jobs report due on Thursday, “the market will get thin in terms of trading and we can be susceptible in terms of volatility and investors should expect exaggerated moves,” said Dan Heckman senior fixed-income strategist for The Private Client Reserve of U.S. Bank.

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