NEW YORK, Dec 31 (Reuters) - U.S. Treasury yields moved lower on the last trading session of 2018, as daily volume in the market hit its third-lowest point of the year.
Any movement in the market on Monday was because of positioning for the end-of-month close, said Lou Brien, market strategist at DRW Trading in Chicago.
"If we were to see some sudden and large movement in the stocks, you might get some counter-reaction in Treasuries. I expect very little to go on unless there's a move elsewhere."
With markets closing early on New Years Eve and many investors out of the office ahead of the holiday, daily trading volume was lower than any other day of the year except for Sept. 4 and June 1. Low volume can magnify market moves that do happen, but yields were trading within a narrow range of 1 to 2 basis points across maturities on Monday morning.
Yields have been falling for two months on a flight to lower-risk investments as stock prices slid in volatile trading. Nevertheless, yields remained up for the year, particularly in shorter-dated maturities, as the Federal Reserve continued its monetary tightening apace, raising interest rates four times in the last 12 months.
The two-year note yield rises with traders' expectations of interest rate hikes. The spread between two- and 10-year note yields, the most common measure of the yield curve, was its flattest since 2007, closing the year out around 19.5 basis points.
This winter's stock market gyrations have sunk investor expectations of rate hikes in 2019. The probability of a 25 basis point rate hike in either May, June or July of 2019 has fallen from around 40 percent to around 15 percent today, according to CME Group's FedWatch tool.
Nevertheless, many investors expect the flattening trend to continue. They noted that they expect the 10-year yield, which is indicative of traders' overall perception of the health of the U.S. economy, to fall as Wall Street's decade-long bull run becomes increasingly likely to end.
"It's going to be difficult to maintain a 10-year yield above 3 percent and I think that's what we saw at the end of the year," said Brien.
The benchmark 10-year yield was last at 2.725 percent, 1.3 basis points below Friday's close. The two-year note yield was last at 2.524 percent, 1.2 basis points below its last close. And the 30-year yield was last at 3.034 percent, down 1 basis point. (Reporting by Kate Duguid; Editing by David Gregorio)