Yield Curve Steepening Points to Rising Long-Term Yields

The S&P 500 closed the session up just over 50 basis points, in what felt like a familiar Monday pattern following Friday’s sharp drop in the 1-day VIX from 16.4 to 9.5. While the repetition can feel tiresome, the signal is clear: with volatility effectively reset, the index is once again at risk of stalling.

In other developments, the quarterly refunding announcement came in stronger than anticipated based on prior guidance, with the second quarter standing out as the key surprise. The Treasury now expects to issue $109 billion, assuming a Treasury General Account balance of $900 billion. The increase in the TGA target from $850 billion was unsurprising given the scale of U.S. debt and is a point that has been repeatedly highlighted.

Treasury yields were higher for much of the session following the stronger-than-expected ISM manufacturing data and extended those gains after the Treasury’s 3:00 p.m. ET announcement. Further clarity on the composition of the issuance is expected Wednesday morning.

The 30-year minus 3-month spread has returned to the upper boundary of its bull-flag formation. A decisive break above the 1.25% level could trigger further upside momentum, with scope for a move toward the 1.7%–1.75% range.

Absent a meaningful downside shock, the yield curve is likely to continue steepening, driven primarily by higher long-end yields.

As highlighted yesterday, Palantir’s (NASDAQ: PLTR) key resistance level from an options-positioning perspective sits near $160, which is where the stock stalled in after-hours trading. If shares fail to break decisively above that level, a reversal of recent gains and a sharp pullback during today’s session would not be unexpected.

Sources: Michael Kramer