US Treasury bonds experience a crash sell-off, 2-year yield soars to 4.135%, curve collapses, and hedge funds aggressively sell 320,000 futures contracts

⑴ In May, non-farm payrolls increased by 172,000 (market expectation: 85,000; previous value revised to 179,000), with 120,000 jobs added in the private sector, 52,000 in the government sector, and 7,000 in manufacturing. The unemployment rate remained steady at 4.3%. Average hourly earnings rose by 0.3% month-over-month and 3.4% year-over-year, with working hours holding at 34.3 hours. ⑵ US Treasury yields surged across the board. The two-year yield jumped 8.6 basis points to 4.135%, briefly reaching 4.153% during the session. The ten-year yield rose 5.9 basis points to 4.536%. The thirty-year yield increased by 3.7 basis points to 5.015%, touching as high as 5.025% intraday. ⑶ The yield curve collapsed sharply. The spread between two-year and ten-year yields narrowed to 39.93 basis points, a single-day compression of 2.87 basis points. The spread between two-year and thirty-year yields stood at 87.7 basis points, shrinking by 5.2 basis points. The spread between five-year and thirty-year yields reported 74.7 basis points, narrowing by 4.3 basis points. ⑷ The interest rate futures market significantly increased bets on rate hikes. December federal funds futures suggested a 43% implied probability of a rate hike by the end of the year, up from Thursday’s closing of 38%. The OIS contract (6x9) is fully pricing in a single 25 basis point rate hike, and SOFR futures across the board are also pricing in a rate hike this year. ⑸ On the trading front, hedge funds led the selling after the data release, selling 120,000 contracts of ultra-long-term Treasury bond futures, 150,000 contracts of ten-year Treasury bond futures, and 50,000 contracts of long-term bond futures in single trades. Commodity trading advisors mainly covered short positions in the early minutes of CME trading and quickly switched to selling. After the long end yields broke above 5.00%, algorithmic trading triggered short covering, and physical funds began tentative buying, though it was still difficult to reverse the selling wave.