Fixed Income Focus – US Yields dip, curve steepens ahead of weekend Iran talks

Treasury yields were mostly lower this week, and the curve was steeper as traders reacted to the announcement of a cease-fire agreement with Iran.

After a quiet start to the week, rates fell late Tuesday and early Wednesday as oil prices tumbled after a two-week cease-fire agreement was announced for the US/Israel-Iran war, which was to include a reopening of the Strait of Hormuz. However, sporadic attacks continued, and the strait remained effectively closed as the US and Iran each accused the other of violations of the agreement.

Equity market traders did a better job of maintaining an optimistic outlook for negotiations though, leaving the S&P 500 index 3.6% higher for the week, the DJIA 3% higher, and the Nasdaq 4.5% higher. The strength in equities pulled the recent safe-haven support for the dollar, and the dollar index was 1.3% lower for the week. It was still 1.2% higher since the start of the war, but that is down from a gain of as much as 3.1% through late March.

Corporate and MBS spreads narrowed for the second week in a row amid the broader rates market improvement, but swap spreads were mixed.

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