Rates weekly: Middle East Tensions Squeeze Iran and Steepening Trades

EUR rates:Recap of the week: European rates experienced a sharp repricing this week as the escalation of the US-Iran conflict pushed energy prices higher and revived inflation concerns. The front end led the sell-off, with the 2y Schatz rising above 2.25% and money markets shifting from pricing further ECB easing to embedding the risk of additional tightening. Curves bear-flattened significantly as the long end remained relatively resilient amid positioning adjustments and the unwind of carry trades. Peripheral spreads widened temporarily but proved broadly resilient despite the surge in volatility.Tactical view: Geopolitical risks favor short duration Bunds and a hawkish ECB. Curve dynamics suggest caution on steepening, favoring continued flattening. Higher rates and risk-off sentiment point to wider sovereign spreads. Rising energy prices support short-end inflation buyers. We are short duration, short Schatz bias, small steepening on 2s10s, focus on flattening 10s30s, wider 10Y OAT-Bund spread, Long inflation strategies.Insights of the week: Who Holds EGBs Now? Shifts in the Investor Base in 2025US rates: We step back from the potential near-term, day-to-day movements which are inherently unpredictable, and think about how the conflict should frame our approach to US rates over the medium-term. In addition, we are closing out 3s30s swap spread flatteners at -53.75 from -43bps and -47.75bps.