Treasuries Hold Losses After Oil Drops on US-Iran Progress

Treasuries fell as trading resumed following a US public holiday, with Washington and Tehran working to hammer out details of a peace accord.

US 10-year yields were around five basis points higher across the curve at midday in New York, as traders returned from Friday’s cash-market holiday, when European peers posted a sharp jump. The move came even as oil prices turned lower after Iran said there had been “major progress” in all-night discussions with the US.

“The physical US bond market is playing a bit of catch-up this morning, having been out for a holiday on Friday,” said Andrew Ticehurst , strategist at Nomura Holdings Inc. in Sydney.

Brent crude fell 3.6% to $77.67 a barrel, having earlier risen 2.2% to $82.30.

Monday’s US session featured traders buying options linked to the Secured Overnight Financing Rate, as a way to fade the current amount of Federal Reserve rate hike premium priced into the front-end. Currently, around 45 basis points, or almost two full quarter-point moves are priced by the end of the year.

In Treasury options, a number of large trades targeted a bond market rally over the coming week’s that would profit should 10-year yields drop to 4.4% or lower.

Strategists also pointed to Fed Chairman Kevin Warsh’s last week as another reason for the selling pressure. Warsh made clear the central bank won’t tolerate high inflation. Traders are now almost fully pricing in a quarter-point Fed hike by September, compared with expectations for next March at the start of last week.

Read: BofA Makes Another Fed Call Change, Sees 75bp of Hikes This Year

“Markets are still trading in the wake of the hawkish Fed last week,” said Abbas Keshvani , director of Asia macro strategy at RBC Capital Markets in Singapore.

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