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By Rom Badilla, CFA – Bond Trader and BondSquawker

U.S. Treasury yields were higher across the curve as yesterday’s flight-to-quality trade dissipated.  2-Year Treasuries underperformed the most across the curve as the yield increased 10 basis points to 1.05 percent.  The yield on the 5-Year finished at 2.51 percent, a move higher by 9 basis points.  The yield on the 10-Year increased 8 basis points to 3.77 percent while the Long Bond managed to keep the gains from the recent rally by widening out only 6 basis points to 4.64 percent.

30-Year Treasury Yield – Intra-Day Chart from Last 2 Days

The Federal Reserve maintained short-term rates at 0.25% for “an extended period” of time, which market expectations.

The U.S. Treasury held its third auction of five this week by selling $42 billion of 5-year T-notes at a median yield of 2.49%.  The auction was met with strong demand by investors as the bid-to-cover, which is a gauge of demand, was at 2.75.  Comparatively, the bid-to-cover ratio for the last 10 auctions was at 2.55.

The Euro was able to take a breather today from its latest slide and from news that S&P downgraded the credit rating of Spain.  The Euro increased by 0.4 percent to 1.3221.  The Dollar Index which is a measure against the world’s 6 major currencies appreciated by 0.3 percent to 82.381.

The stock market bounced after yesterday’s massive drop.  The S&P 500 advanced 0.7 percent to 1191.36. The Volatility Index aka VIX declined 7.6 percent to 21.08.  Despite today’s decline, the VIX remains elevated above its daily average in April of 17.15.