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2026-05-26 21:41:34
[US-Iran tensions weigh on oil prices; US Treasuries trade sideways; month-end buying and supply pressures offset each other] ⑴ US Treasuries traded sideways on Tuesday, remaining near their intraday highs. Overnight short covering dominated the price action. The potential for a defensive US strike on Iran could accelerate a peace agreement and reopen the Straits of Hormuz, providing a backdrop for stabilizing oil prices. ⑵ Commodity trading advisors sold at the opening of the Chicago Mercantile Exchange, after which fund flows quickly diverged. Some speculative and real money buying was related to catch-up demand following Monday's market closure. Real money buying persisted, with banks' proprietary trading desks also buying across the board. However, hedge funds sold during the rise due to doubts about the short-term likelihood of a peace agreement. ⑶ Traders sold on rallies to prepare for the month-end coupon auction this week. The $69 billion 2-year Treasury auction that began on Tuesday partially curbed the overnight overheated buying at the front end of the yield curve, keeping the yield curve moving sideways. The 10-year Treasury yield remained anchored at 5.00% in both directions of fund flows. (4) Subsequent data releases were generally positive, but the data only reflects two-way capital flows. Month-end position adjustments are another focus, attracting index-linked buyers. (5) According to the widely tracked Bloomberg month-end portfolio index, Treasury bond duration extended to 0.10 years, down from 0.11 years in June last year, but above the 12-month average of 0.08 years.
