The US-Iran situation suppresses oil prices, US Treasuries trade sideways, and month-end buying is offset by supply pressures.
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⑴ On Tuesday, US Treasury prices remained range-bound, staying near the intraday highs. Overnight, a large-scale short covering dominated the market. The US defensive strike against Iran could accelerate the signing of a peace agreement and reopen the strait, providing a backdrop for oil prices to stabilize.⑵ Commodity Trading Advisors sold at the Chicago Mercantile Exchange opening, after which capital flows quickly diverged. Some speculative and real money buying was related to the catch-up demand after Monday’s market holiday. Real money buying persisted, and bank proprietary desks also bought across the board, but hedge funds sold into the rally due to doubts about a near-term peace agreement.⑶ Dealers sold on rallies in response to this week’s month-end coupon auction supply. The $69 billion two-year Treasury auction starting on Tuesday has partially curbed overheated front-end buying overnight. The yield curve continued to move in parallel, with the 10-year Treasury anchored at 5.00% amid two-way flows.⑷ A batch of data subsequently released was overall robust, but the data is only part of the two-way market flows—month-end position adjustment is another key focus, attracting index-linked buyers into the market.⑸ According to the widely followed Bloomberg month-end portfolio index, the Treasury duration extension is 0.10 years, lower than 0.11 years in June last year, but higher than the 12-month average of 0.08 years.
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