Sanctions, Tariffs and the Long End

• The US has launched an “Economic D-Day” campaign against Iran, threatening sanctions on countries and institutions that maintain economic ties. The move raises fresh risks for global trade, dollar funding and energy markets amidst ongoing conflict.
• US-Canada trade tensions escalated after President Trump threatened 50% tariffs on Canadian auto imports. Markets are wary that similar measures could broaden to other trading partners and add uncertainty to the global inflation outlook.
• Long dated US Treasuries rallied on reports the Treasury could use its US$950bn current account cash balance to fund the recently announced bond buybacks. The 10-year yield fell 4bps to 4.70%, easing pressure at the long end, however, time will tell whether the easing will be sustained.
• Today’s focus is the RBA’s August minutes, with markets looking for greater insight into inflation risks and the prospect of another hike. OIS still implies a year-end cash rate near 4.50%, while RBA Head of Domestic Markets Jacobs also speaks in Sydney.