Treasuries Get Respite as Middle East Risks Fan Haven Bid

(Bloomberg) — Treasuries advanced with the dollar as concerns over an escalation in the Middle East conflict bolstered demand for safe-haven assets.

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The yield on 10-year Treasuries slumped as much as 11 basis points to 4.52%, while a gauge of the dollar’s strength climbed toward its highest since November. The move came amid unverified media reports of explosions in Iran, Syria and Iraq. Traders have been awaiting an Israeli response to Iran’s attack last weekend, with the rhetoric between the two escalating.

“With the Middle East spiraling into a tit-for-tat escalation, long-end US Treasuries are set to rally strongly on a safe haven bid,” said Wei Liang Chang, macro strategist at DBS Bank Ltd. in Singapore.

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The haven rush comes at a time the bonds are under significant pressure from a rethink of expectations for the path of US interest rates. Benchmark yields hit their highest since November this week in response to strong economic data and hawkish remarks by Federal Reserve officials.

That included a signal from Fed Chair Jerome Powell that the central bank is in no hurry to cut rates.

“I would say that we’ve seen a material rise in US yields over recent weeks, and a lot of investors and traders, including systematic accounts, will likely be running short US bond positions,” said Andrew Ticehurst, rates strategist for Nomura Holdings Inc. in Sydney. “So there is clear risk that some of these positions will be covered, which could lead to out-sized moves.”

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