U.S. Treasury Yields Rise; Dollar Weakens on U.S.-Iran Diplomacy Hopes — Market Talk

0950 GMT - U.S. Treasury yields rise in European trade reflecting the market's continued expectation of Federal Reserve rate hikes, while the dollar is slightly lower as the U.S. and Iran make renewed diplomatic efforts for a peaceful resolution. "Although tensions escalated during the last few days, sentiment improved after reports emerged that both sides agreed to resume negotiations over the Strait of Hormuz," Exness' Dat Tong says in a note. The development revived hopes that the interim peace agreement could be preserved, reducing demand for safe-haven assets such as the dollar, the senior financial markets strategist says. The 10-year U.S. Treasury yield rises 1.4 basis points to 4.385%, according to Tradeweb. The DXY dollar index declines 0.1% to 101.267. (emese.bartha@wsj.com)

0927 GMT - European Central Bank policymakers could provide some support to the euro if they keep alive the prospect of interest rate rises at the ECB's forum in Sintra, Portugal from Monday to Wednesday, ING's Francesco Pesole says. "The preference emerging from the many ECB speakers this week may well be to keep markets leaning toward a hawkish bias so that inflation expectations remain in check," he says in a note. ING expects another rate rise in September. While the euro faces a hit from any renewed dollar appreciation, ECB rate rise signals should limit losses, he says. The euro rises 0.1% to $1.1399. ING sees the euro remaining above $1.1300 with a gradual recovery towards $1.1500 in July. (renae.dyer@wsj.com)

0912 GMT - Candriam moves its view on U.S. Treasury duration to a modest positive grade from neutral, implemented through the front end of the curve, Nicolas Jullien, global head of fixed income, says in a note. "This is the first time we are taking a long view on nominal rates this year, and this follows a period in which we have deliberately waited for the sell-off to create a more attractive entry point," he says. Candriam considers that the main support comes from valuations, where it sees a meaningful overshoot. "Markets are pricing a Federal Reserve [interest rate] hike before the end of the year, which we see as exaggerated," Jullien says. The two-year U.S. Treasury yield rises 1.9 basis points to 4.105%, according to Tradeweb. (emese.bartha@wsj.com)

0908 GMT - Candriam stays modestly positive on Bunds, while preferring duration to non-core spread exposure, Nicolas Jullien, global head of fixed income says in a note. Bund yields marginally above 3% "still offer some value, especially in a scenario in which geopolitical tensions ease and oil prices retrace," he says. Conversely, an adverse energy shock could push yields back toward recent highs, so the position remains measured, Jullien says. He adds that the oil price remains the dominant driver of euro rates. The 10-year Bund yield last trades at 2.854%, up 0.4 basis points, according to Tradeweb.(emese.bartha@wsj.com)

0905 GMT - The cost of default protection for euro denominated credit falls as U.S. and Iran pause attacks, easing concerns about renewed conflict. "Despite short term violations of the ceasefire, we believe that U.S. and Iran will agree to a deal," Jefferies economist Mohit Kumar says in a note. The iTraxx Europe Crossover index of euro high-yield credit default swaps falls 1 basis point to 247bps, S&P Global Market Intelligence data show. (miriam.mukuru@wsj.com)

0834 GMT - Sterling could weaken against the euro despite its recent resilience after U.K. Prime Minister Keir Starmer announced his resignation last week, ING's Francesco Pesole says in a note. Andy Burnham is widely expected to succeed Starmer. In recent days Ed Miliband has emerged as the frontrunner to become treasury chief rather than more centrist candidate Wes Streeting, he says. Sterling's resilience suggests markets are pricing in a smooth leadership transition or don't see material risk of fiscal slippage under Miliband, he says. The euro could rise to 0.8700 pounds this summer from 0.8630 pounds currently as it looks undervalued, political risks might resurface and the Bank of England is unlikely to raise interest rates as markets expect, he says.(renae.dyer@wsj.com)

0833 GMT - Gross government bond supply in the eurozone is expected to decline to 115 billion euros in July from 140 billion euros in June, as eurozone countries are less likely to launch new syndicated transactions, the Investment Institute by UniCredit's Francesco Maria Di Bella says in a note. Year to date, eurozone debt agencies have issued 830 billion euros in government bonds, representing more than 60% of the funding target for 2026, the fixed income strategist says. Net supply has so far exceeded 300 billion euros, amounting to around two thirds of the expected full-year total, he says. (emese.bartha@wsj.com)

0828 GMT - A Supreme Court ruling this week on President Trump's attempt to fire Federal Reserve governor Lisa Cook poses a potential headwind to the dollar, ING's Francesco Pesole says in a note. If the ruling supports Trump's bid, that could "reignite some Fed independence concerns which could weigh substantially on a dollar," he says. However, in January justices signaled skepticism over Trump's claim that he could immediately remove Cook on allegations of mortgage fraud. The DXY dollar index falls 0.1% to 101.241.(renae.dyer@wsj.com)

0804 GMT - Germany's business community is counting on constructive talks between the European Union's trade chief Maros Sefcovic and China's commerce minister Wang Wentao on Monday, says Volker Treier, chief of foreign trade at the DIHK German Chamber of Commerce. Europe must build a united front, given companies are being hurt by competitive distortions from China and weak Chinese demand, he says. "China should address this weak demand with determination in order to regain the trust of European suppliers." A rapid end to Chinese export restrictions on critical raw materials should be at the top of the agenda, Treier says. Stricter steel-import restrictions and the conclusion of further trade agreements aimed at supply-chain diversification are also important, he adds. (edward.frankl@wsj.com)

0747 GMT - The euro could take a while to recover meaningfully against the dollar, Commerzbank's Michael Pfister says in a note. The market is unlikely to bet on more interest-rate rises by the European Central Bank as euro-area inflation probably peaked in May, he says. Data on Wednesday are expected to show inflation eased slightly in June following a fall in energy prices. The dollar also looks set to remain elevated as there is no decisive event for the market to price out expectations for Federal Reserve interest rate rises, he says. "It is therefore likely to be quite some time before the prewar level of 1.18 for euro-dollar comes back into focus." The euro rises 0.2% to $1.1407. (renae.dyer@wsj.com)

0733 GMT - Gilt investors' attention is on the appointment of the new leader of the U.K. Treasury, Goldman Sachs Research strategists say in a note. Some of the candidates who could take up the role are Ed Miliband, Wes Streeting, Shabana Mahmood, and Yvette Cooper. Investors will want to know the fiscal plans for the new leader of the Treasury. "This decision is likely to be the primary near-term driver of market uncertainty," they say. Ten-year gilt yields rise 0.6 basis points to last trade at 4.739%, Tradeweb data show. (miriam.mukuru@wsj.com)

0718 GMT - Yields on U.K. government bonds, or gilts, rise as investors await the speech by prime minister hopeful Andy Burnham. Burnham is expected to lay out his economic policies and his plans to drive growth in the U.K. Investors are concerned that the new policies could push up government debt and exacerbate U.K.'s weak public finances. Ten-year gilt yields rise 1 basis point to last trade at 4.743%, Tradeweb data show. (miriam.mukuru@wsj.com)