US Treasury bonds face a bear steepening trend, rumors of Iran contacts trigger a rebound in risk assets

(1) The bond market saw a slight bear steepening overnight, as investors await major developments, particularly regarding the Middle East conflict. The New York Times reported that Iranian agents have indirectly contacted the CIA, proposing conditions to discuss ending the conflict with the US and Israel, providing a catalyst for a shift in market sentiment. (2) Oil prices promptly gave back overnight gains; although still up slightly, they have sharply retreated from the high of $77.23 to $74.68, with this high itself lower than Tuesday’s peak of $77.98. This highlights the market’s sensitivity to geopolitical news. (3) The stock market actively digested this news, with the S&P index reversing from a 0.8% decline to a 0.2% gain. The Euro Stoxx 50 jumped 1.4%, forming a sharp contrast to the previous declines of 3.6% in the Nikkei and 1.1% in the CSI 300, showing differentiated regional market responses to the news. (4) German bonds rebounded, rising more than a dozen ticks from the settlement price, partially recouping the sharp losses since the start of the week. The spread between 10-year US and German bonds widened by more than 1.5 basis points to 132.5 basis points compared to the European close. (5) The US dollar also retreated from safe-haven buying, with the dollar index pulling back from the overnight high of 99.33 and Tuesday’s high of 99.68 to 98.82. The yen strengthened to 157.20, while the euro and pound rose to 1.1635 and 1.377 respectively. Gold rebounded to $5191.64 after a sharp drop on Tuesday, with the collective reaction of safe-haven assets indicating the market’s initial pricing of expectations for geopolitical easing.