US Treasury bonds under pressure, oil prices continue to rise as Middle East conflict sparks new wave of risk aversion

⑴ The overnight bond market edged lower, while crude oil prices continued to soar, climbing over $3.5 during the day to reach $90.48 per barrel. Escalating conflict in the Middle East has once again become the core driving force in the market, with the Houthi forces attacking an oil tanker in the Red Sea and announcing a counter-blockade against Saudi Arabia, further intensifying fears of supply disruption.⑵ US Treasury trading was active, with about 305,000 contracts of the 10-year note traded by early US Eastern time. The September contract traded in a range between 108-09 and 108-15, last quoted at 108-10. Traders stated that the market encountered decent buying interest during the decline, but it was not enough to effectively reverse the downtrend, as the buying was easily absorbed.⑶ The overall stock market came under pressure, with the S&P 500 Index down about 0.4%, the Euro Stoxx 50 Index extending its loss to 0.8%, while Asia-Pacific markets diverged: the Nikkei 225 Index rebounded against the trend by 0.5%, and the CSI 300 Index closed up slightly by 0.2%.⑷ German government bonds also fell in tandem. The yield spread between the 10-year US Treasury and German Bund widened by about 1 basis point compared to the European close, last at 148.4 basis points. The US Dollar Index edged up to 101.16, the yen weakened to USD/JPY 163.37, while the euro and pound strengthened moderately. Gold prices gave back most of Wednesday's gains, retreating to around $4,088.78 per ounce.