Geopolitical premium remains elevated, US Treasury yields fluctuate at high levels, short-term volatility becomes the main theme

⑴ US Treasury bonds continue to face dual pressures: accelerating core inflation even before the Iran war, and market doubts over the durability of the US-Iran peace agreement. The Strait of Hormuz finds it difficult to regain its past status as a risk-free energy corridor.⑵ The two-year Treasury yield hit a cycle high of 4.23%, and the ten-year yield reached 4.505%. The 2s/10s spread narrowed to 25 basis points, marking a new level of curve flattening in this cycle.⑶ Although the US-Iran agreement establishes a ceasefire mechanism and discusses reopening the Strait, Israel and Hezbollah are not direct negotiating parties. Trump has warned Iran not to blockade the Strait again, while Tehran insists it will not discuss broader issues until the conflict in Lebanon ends, leaving prospects for a lasting solution highly uncertain.⑷ Even if transit remains smooth in the Strait, recent events have reinforced the market's repricing of geopolitical risk premiums. Energy consumers, producers, and the shipping market are expected to persistently adjust, structurally pushing oil prices higher. Institutions expect crude oil prices to fluctuate between $87 and $90, rather than staying consistently below $70.⑸ This scenario will sustain inflation concerns and upward pressure on US Treasury yields, especially at the front end, as the market remains highly sensitive to price pressures driven by energy that could disrupt the Federal Reserve's easing trajectory.⑹ Bank of America Global Research now expects the Federal Reserve to raise rates by 25 basis points in September, October, and December 2026. Just last month, the bank had switched from expecting rate cuts to holding rates steady. The reversal highlights how swiftly market views on growth, inflation, and Fed policy are changing.⑺ The economic calendar on Monday is light, with no data releases and no Federal Reserve speeches. The Treasury Department will auction $89 billion in 13-week and $77 billion in 26-week Treasury bills. For trading, it remains advisable to sell on strength within the 4.47% to 4.50% range for the ten-year yield.