Mizuho on USD - FJElite

USD USTs closed last week with a modest steepening bias, extending the broader trend seen through the week.

The front-end led the recovery throughout, supported by softer oil and continued repricing lower in Fed tightening expectations, while the long end remained comparatively heavy after 30Y UST yields mean-reverted towards the 200-day moving average and lost bullish momentum since then.

Last week's escalation between the US and Iran (including direct strikes and disruption to shipping flows through the Strait of Hormuz) briefly injected volatility into rates and risk assets.

However, weekend headlines pointing to a pause in hostilities and renewed talks in Qatar helped stabilise sentiment.

Despite this headline volatility, oil prices haven’t really spiked, and Brent remains comfortably below $75pb.

Last week, the market meaningfully scaled back the extent of Fed tightening, with December OIS now implying just over 30bps of hikes this year.

Looking into this week, and following a quiet Monday, the focus shifts to US labour market data (JOLTs on Tue, ADP on Wed, NFP on Thu), which may bring a move towards pre-FOMC lows if data remains strong.

The market will also pay attention to global policy signalling from the Sintra forum, with Warsh speaking on Wed.

A reaffirmation of hawkish rhetoric would likely reintroduce flattening pressure and potentially add bearish pressure to USD rates after the rally seen lately.