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Commerzbank Sees Middle East Tensions Driving Treasury Selloff; Waller Flags Near-Term Rate-Hike Risk

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Treasuries extended their selloff in Asian trading as Brent crude climbed to $85 per barrel amid escalating military action in the Middle East, according to a note from Commerzbank. The US dollar weakened.

President Donald Trump reiterated that the U.S. will control the Strait of Hormuz and be reimbursed for securing it. A US blockade is reportedly set to begin on Tuesday, said Commerzbank. Airstrikes have resumed and Trump has formally notified Congress of the renewed military campaign.

Meanwhile, Federal Reserve Governor Christopher Waller said a hotter-than-expected core inflation reading this week could prompt the central bank to consider a rate hike "in the near term." European Central Bank policymaker Isabel Schnabel highlighted the eurozone's key structural challenges, including geopolitics, demographics, fiscal sustainability, innovation, and access to risk capital.

In Europe, the European Commission is considering broader banking reforms, according to a Bloomberg-cited draft set for release Friday. British Finance Minister Rachel Reeves is expected to reaffirm the government's fiscal rules and underscore policy credibility in her final Mansion House speech, added the bank.

In Asia, Finance Minister Satsuki Katayama proposed tax-free investment accounts for Japanese government bonds, while GPIF is set to review its strategic asset allocation. China's trade surplus climbed to its second-highest level on record as both exports and imports beat expectations, said Commerzbank.

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