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There has been a material shift in underlying sentiment as investors sought safety in US Treasuries. To be sure, we are not at full-blown risk off but we note that key levels (2Y at 3.4% and 10Y at 4%) have been broken. However, there are a few narratives that are worth monitoring. First, the transition from sector rotation to sector disruption (arising from AI) keeping putting a dampener on software companies. Moreover, we note that some of the large tech players are lagging the broader equity market. While these shifts may be violent on a sectoral / individual name level, the translation into the VIX has been muted. However, that does not mean that all is calm. VIX may be understating equity undercurrent. We would be monitoring proxies for private assets and financial institutions. Second, Iranian tensions have boiled over. Markets have been anticipating this risk for a while, with Brent crude pushing above USD 70/bbl. The length (how long the conflict lasts), the extent (how many countries get involved) matters. From a markets’ perspective, getting a gauge on the disruption of energy supplies via the Straits of Hormuz is the most important. 
Against this backdrop, market participants have become more risk averse and some of this will spillover when the week starts. A breakdown of 10Y USTs indicate that an increase in rate cut bets (more, but further out) and a decline in implied real yield are the two largest drivers for lower yields. Investors are finetuning bets in the front of the curve given resilient US data. Pushing back rate cut bets makes sense but there is also a need to hedge against a potential downturn further out. These same dynamics are probably also compressing implied real yields in the longer tenor. All else equal, the Supreme Court’s ruling on tariffs means that there is a revenue gap that needs to be filled. Fiscal worries are still there. Moreover, we do not think that the economic outlook has deteriorated. This leaves demand for safety as the most likely factor driving long-end yields lower and the UST curve flatter.
Levels wise, 10Y yields have hit our 1Q forecast of 4%. In the event of deeper risk aversion, a push lower into the 3.8-3.9 is conceivable. Similarly, the 2Y/10Y has flattened below 60bps, but we still see this flattening as countertrend. 
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Related insights
- Asia ex-Japan Equities02 Mar 2026
- Research Library02 Mar 2026
- Immediate implications of the Iran conflict02 Mar 2026
Related insights
- Asia ex-Japan Equities02 Mar 2026
- Research Library02 Mar 2026
- Immediate implications of the Iran conflict02 Mar 2026