US TSYS: Cash Yield Rise Extends, 2yr Eyeing Break Above 4.20%, As Oil Spikes

Cash Tsy yields have extended Friday's gains, as oil futures hold up close to 4.2%, as Iran and Israel trade tit for tat strikes. This suggests any US-Iran peace deal will be some distance away although US President Trump is still pushing for this and insisted the recent strikes don't change US-Iran deal prospects. Tsy yield benchmarks are around 3-5bps higher, with the front end still leading the move. 

• For the cash US 2yr is around 4.19%, looking to move back into 4.20-4.40% region, last seen back in early 2025. The 10yr is yet to test recent May highs, at 4.57%, we are around 10-11bps short of this region.
• In the TSY futures space, the 10yr is down -07 to 108-27. Bearish risks likely persist in the near term, with the low 108 region, (lows from May) eyed for the active contract.
• Near term sentiment will be dictated by Middle East developments and its spill over to oil prices. Risk sentiment was hit notably on Friday in the equity space, with the NFP result seeing US yields surge. We are doing better today, with Nasdaq futures marginally higher. If this backdrop deteriorates we may see some safe haven US Tsy support, although this is likely to be at the back end.
• The US data backdrop remains very strong, the Citi US surprise index up to 63.2, highs since Oct 2023.This is supporting the more hawkish US Fed backdrop. The next focus point will be Wednesday's CPI print.