Iran Ceasefire Triggers Market Rollercoaster; US Treasuries Surge Followed by Hedging Sell Pressure
- Iran and the United States have reached a two-week ceasefire agreement, just two hours before the US was expected to launch a large-scale attack. This news caused US Treasury yields to plummet across the board: the 2-year yield fell sharply by 11.6 basis points to 3.717%, and the 10-year yield dropped by 10.9 basis points to 4.234%. The yield curve continues to steepen, with the spread between the 2-year and 30-year yields widening by 4 basis points to 112.8 basis points.
- The swap market saw intense volatility at the open, with swap spreads widening significantly across all maturities. The 2-year swap spread stood at -17.25 basis points, and the 10-year swap spread at -43.75 basis points, with the yield curve steepening concurrently with a sharp fall in money market rates. Fed rate cut bets were drastically reduced, and red SOFR futures outperformed, further accentuating the steepening of the swap spread curve.
- Oil prices plummeted by more than 13%, marking the largest single-day loss since the pandemic, with Brent crude at $94.17. Gold tumbled over 16%, and the US Dollar Index fell 1.04% to 98.823. Global stock markets rebounded strongly: the Nikkei 225 surged 5.39% and Germany’s DAX rose 4.72%.
- The rally in US Treasuries met resistance during London afternoon trading, as the overnight rebound attracted traders to hedge ahead of today’s $3.9 billion 10-year Treasury reissue, leading to selling pressure early in the session. However, large-scale CTA short covering before the CME open quickly drove prices back up, and continued declines in oil prices provided support to the bond market. If yields remain low, major borrowers disclosed in Q1 earnings may take the opportunity to issue bonds, increasing swap buying.
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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