Geopolitical Risk Premium Unwinds As Odds Of Iranian Response To Israel Fade

Tsys sit comfortably off their Asia-Pac highs, as the bulk of the initial geopolitical risk premium that was priced in following the Israeli counter offensive against Iran unwinds.

• Looking ahead, the lack of meaningful damage to Iranian assets seemingly results in little Iranian desire for an immediate response despite their pre-attack warnings, avoiding a worst-case scenario. Furthermore, Iranian nuclear installations were not damaged. That combination explains the price action.
• Still, local press outlets in Israel have since run reports pointing to capabilities of launching more meaningful attacks on Iran.
• TYM4 trades at 108-02+ (107-24+ to 108-22+ range), with volume running at roughly 4x the norm for this time of day (~945K) lots.
• Initial technical levels of 108-25+ and 107-13+ are untouched.
• Cash Tsy yields are 2-5bp lower, with 10s leading the rally.
• STIRs also ease back from dovish Asia extremes alongside Tsys, leaving ~40bp of ’24 cuts priced into FOMC-dated OIS, little changed on the day.
• Comments from Fed’s Goolsbee are due later, although we will be on the lookout for impromptu Fedspeak ahead of the pre-FOMC blackout period, which goes into effect this weekend.