HORMUZ TAPE LANDS. DURATION RALLIES PARALLEL 5-7BP. OIL DOWN 6%.
Tape (Tuesday May 26, 9:00 AM EDT)
30Y 5.02% (-5bp). 10Y 4.49% (-7bp). 5Y 4.19% (-7bp). 2Y 4.07% (-6bp). Parallel rally, no curve shape change.
WTI $90.98 (-5.4%). Brent $97.25 (-5.9%). Hormuz peace track now priced "probably," not "maybe."
Gold $4,520 (-1.1%). Silver $76.23 (-2.4%). Inflation expectations deflating with oil.
Dollar firming despite duration rally. EUR 1.1630, GBP 1.3465, JPY 159.24.
EWZ Brazil -1.7%. EM commodity exporters squeezed even as local rates rally.
SPY +0.4%. MT Newswires 8:53 AM: "Progress on Potential Middle East Peace Agreement Drives US Equity Futures Higher Pre-Bell."
Calendar
10:00 AM: Consumer Confidence (Conference Board)
1:00 PM: $69B 2-year Treasury auction. Watch indirect bidder share.
Richmond Fed Manufacturing.
Color
The dollar firming alongside the Treasury rally is what most desks will miss this morning. Peace deflates oil → deflates US inflation expectations → US becomes the cleanest sovereign in a deflating-commodity world → USD bid. EM commodity exporters get squeezed even as their local rates rally. Counterintuitive for retail. Coherent for institutional.
The Hormuz rally has done the duration work. But the deal isn't done. April 26 is the recent template for how fast this reverses. Position size accordingly.
Gauge softens from 7 to 6. Duration component drops from 8 to 7 on long-end relief. Supply stays at 8 — the $183B coupon calendar this week is unchanged by Hormuz. The 7-year auction Thursday is still the danger zone. PCE Friday still prints.
Watch
1:00 PM 2Y auction. The Hormuz rally has compressed yields; the question is whether the foreign indirect bid shows up at the new clearing level.
— Rich Petruzzo, CFA
Rich Petruzzo is a CFA charterholder. CFA® is a registered trademark of CFA Institute. The Dispatch is not affiliated with or endorsed by CFA Institute. Content for informational purposes only; not investment advice.