U.S. Treasury Bonds Stuck in a "Dead Cat Bounce" Dilemma, Iran Situation and Japanese Bond Logic Reshape Global Valuation

⑴ US Treasury futures are nearly flat, but this stillness itself is a sign of weakness. In the trading context, it is a typical “dead cat bounce”—where a healthy short-covering rally should appear but is nowhere to be seen—reflecting severely insufficient underlying market support.⑵ Three major external forces continue to exert pressure on the bond market: Iran has extended the conflict cycle and resumed underground missile facilities and launch activities; recent attacks on Jordan's air base have resulted in US military casualties; simultaneously, the pressure point has expanded from the Strait of Hormuz to the Bab el-Mandeb Strait. The EU escort fleet has raised its threat level and recommends some related ships to reroute, while multiple Saudi oil tankers have turned around or altered course. Energy supply disruptions are becoming tangible.⑶ Crude oil's technical performance is strengthening accordingly. The near-month WTI contracts have climbed above the 50-day moving average and are moving along the upper Bollinger band. After the Bollinger bandwidth contracted during the ceasefire, it is now expanding again—a signal for re-accelerated upside momentum. Sharp declines in Hormuz passage volume and higher implicit pricing in the refined oil market both indicate that physical supply tensions are much more severe than what futures prices reflect.⑷ Japanese government bonds are another key variable in global bond markets. This morning, institutions reported that concerns about JGB longs are being likened to a “widow-maker” trade. However, historically, this label actually refers to shorting JGBs—not going long. Past experience shows that Japan’s Ministry of Finance and central bank have persistently overwhelmed bearish fundamentals through large-scale bond purchases and yield curve control. Therefore, what truly warrants caution now is if Japan shifts toward selling holdings, which could reverse the logic.⑸ This logic aligns with the framework we used at the start of the year to predict a global bond bear market. The core driver comes from Japan’s move toward interest rate normalization, which boosts global risk-free rates. Combined with Europe’s forced large-scale bond issuance for military and energy security, the yield on 10-year JGBs has hit a key technical target. For short-term trading, refer to the 2-year range of 4.30%-4.08%, 10-year range of 4.68%-4.48%, and focus intraday on the narrow 4.64%-4.60% band.⑹ Wednesday sees no major economic data or Federal Reserve speeches, but supply pressure remains. The Treasury will auction $72 billion in 17-week Treasury bills and $13 billion of reopened 20-year bonds, and perform up to $750 million in inflation-protected bond buyback operations. In the absence of directional catalysts, the flood of supply and technical weakness may keep the bond market in a trend that's easier to fall than to rise.