The positive impact of the US-Iran peace talks proved short-lived; after algorithmic selling of Treasury bonds, CTAs stepped in to buy the dip.
- Driven by optimistic sentiment over the US-Iran peace agreement, US Treasury prices opened higher during the Tokyo session. However, they subsequently fell amid volatility as lower yields were rejected. The market remains cautious ahead of this week’s Federal Reserve meeting while awaiting the official signing of the agreement and the reopening of the Strait of Hormuz.
- Inflation concerns continue to linger. Forward oil contracts indicate that crude oil prices are still priced above $80 through the end of the year. Additionally, the United States has drawn down 66 million barrels from the Strategic Petroleum Reserve since March; at this pace, the authorized quota of 172 million barrels could be depleted by September.
- Geopolitical tailwinds and a 4% decline in oil prices failed to break through resistance levels across tenors along the yield curve. Technical accounts acted as sellers, and sporadic algorithm-driven sell-offs occurred during the London session. Around CME’s open, additional price pressure came from rate-lock related selling linked to IG’s new bond issuance.
- However, commodity trading advisors became the main short-covering buyers at CME’s open, buying on dips. Speculative buying surged after New York State manufacturing data came in far below expectations—recording 5.70 for June, well below the expected 15.0 and the previous value of 19.6.
- At the close, the 2-year yield fell by 4.2 basis points to 4.043%, the 10-year dropped by 3.37 basis points to 4.451%, and the 2-year/10-year spread widened by 1.03 basis points to 41.03 basis points. Curve steepening trades remained favored by real money accounts ahead of the Federal Reserve meeting.
Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.
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