As the risk-on tone continues to dominate market sentiment, a rally and bull steepening across USD rates has been observed. However, despite this broader trend, persistent demand from real money accounts in the long end has acted as a key constraint on curve steepening. Particularly around the 5% yield level in the 30y sector, investors have been stepping in to add exposure, absorbing sell-offs and dampening the ability of the curve to steepen materially.

The ongoing geopolitical tensions, particularly around Iran, have been a major driver of market sentiment and flow dynamics. As these headlines continue to shape investor sentiment, they will likely continue to influence curve dynamics going forward. A re-escalation of the conflict would lead to further sell-offs in the long end, enabling a more sustained steepening bias. Conversely, a de-escalation or resolution scenario would reinforce risk sentiment and favour steepening, particularly in 5y–30y segments, driven by reduced demand for long-duration hedging and stronger growth expectations.

In the near term, the focus will likely remain on these geopolitical developments and their impact on curve dynamics. As investors continue to navigate this uncertain environment, the ability of real money accounts to absorb sell-offs in the long end will be a key determinant of the degree of steepening observed in USD rates.