U.S. long-term Treasury bonds lead the rebound as the yield curve flattens amid intense bullish and bearish competition

⑴ After a wave of overnight selling in US Treasuries, bargain buying gradually emerged, led by the long end, mainly driven by rising expectations for repurchase operations. However, overall momentum to chase the rally was limited as the market awaited Thursday's PPI and Friday's CPI data to confirm the inflation trajectory. ⑵ Escalating Middle East tensions pushed Brent crude prices above $100, with incidents such as the US and Iran striking each other's military targets and Houthi attacks on Saudi energy facilities intensifying concerns over energy supply. The implied probability of a rate hike in September, according to Fed funds futures, rose to 62%, and SOFR futures pricing approached 86%, encouraging more curve-flattening trades. ⑶ Curve-flattening strategies dominated by hedge funds became the main source of intraday selling pressure, while both domestic and foreign speculative and intraday trading accounts reduced positions slightly, further flattening the yield curve. The spread between 2-year and 10-year notes narrowed to around 38.9 basis points, and the 2-year to 30-year spread dropped to 83.5 basis points. ⑷ However, as yields reached higher levels, CTAs and hedge funds concentrated on buying 10-year and ultra-long-term Treasuries, with leveraged accounts executing large futures buys near lows. Real money also made small allocations to the long end along with short-covering, causing long-bond yields to retreat about 3 basis points from intraday highs. ⑸ The investment-grade corporate bond issuance wave continued to dampen bullish momentum, with 14 new bonds announced on the day. Related rate-locking operations led to matching sell orders, and combined with uncertainty ahead of inflation data releases, buying lacked sustained breakthroughs. The direction of the curve still awaits further clarity from data and the geopolitical situation.