Bond markets were filled with hope the day before, as the planets – and diplomatic channels – seemed to align to avoid an escalation. However, consistent rumors indicated that the United States could deploy assault troops for a massive ground operation on Iranian soil, undermining Pakistan’s reconciliation efforts. The risk of escalation towards something Donald Trump has always claimed to reject and want to prevent cannot be excluded, and the “risk-off” clearly does not suffice to offset the new surge from $99 to $108 per barrel in 24 hours, with WTI rising from $88 to $95.
With the return of inflation expectations, T-Bonds rose by +8.8 points to 4.415%, the “30-year” by +6.2 points to 4.85%, the “2-year” by +9 points to 3.97%… and the “20-year” approaching 5%. The rise in rates to the worst levels seen in the medium term is causing stress, as reflected in the VIX, which increased by +8 points to 27.40, while the Nasdaq fell by -1.5% (21,600 for the composite): under different circumstances, this would have greatly benefited “treasuries” and other safe-haven assets.
Gold and silver also experienced selling pressure, a classic scenario when rates rise: Gold dropped by -2.5% to $4,370, and silver by -4.5% to $67.5.
On the macroeconomic front, weekly jobless claims in the United States stood at 210,000, slightly below expectations (211,000), after 205,000 the previous week. Despite the unyielding full employment figures, signs of deterioration are increasing, and the rise in fuel prices to an average of $4 per gallon across the American territory is creating a pro-inflationary environment.
In Europe, bond markets are also on the retreat. French OATs, which lost 8.5 points to 3.645% yesterday, rebounded by 16 points to 3.803% (the worst level since November 2011). Bunds dropped from -5 points to 3.955%, to +12.5 points to 3.080% (+60 points in four weeks), Italian BTPs rose from 3.83% to 4.015%, an increase of 18.5 points (and +75 points since February 27)… and across the Channel, Gilts were not spared either, with an increase of 15 points to 4.98%.
