Bond markets were full of hope the day before, the planets -and diplomatic channels- seemed to be aligning to avoid an escalation, but consistent rumors indicated that the United States could deploy assault troops for a massive land operation on Iranian soil, ruining Pakistan’s reconciliation efforts.
The risk of escalation towards something Donald Trump has always claimed to reject and prevent can no longer be ruled out, and the “risk-off” clearly does not suffice to offset the new surge from $99 to $108 in 24 hours, with the “WTI” price rising from $88 to $95.
With the return of inflation expectations, T-Bonds tightened by +8.8 basis points to 4.415%, the “30-year” by +6.2 basis points to 4.85%, the “2-year” by +9 basis points to 3.97%…and the “20-year” is nearing 5%.
The rise in rates to the worst levels seen in the medium term is causing stress, as evidenced by the VIX which is up by +8 points to 27.40, while the Nasdaq drops by -1.5% (21,600 for the composite): in other circumstances, this would have greatly benefited “treasuries” and other safe haven assets.
Gold and silver are also victims of selling pressure, a classic scenario when rates rise: Gold loses -2.5% to $4,370, silver -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…scores of unshakeable full employment but signs of deterioration are increasing and the rise in fuel prices to $4 per gallon on average throughout the American territory sets an inflationary climate.
In Europe, bond markets are also in “full retreat” mode. Our OATs, which erased 8.5 basis points to 3.645% yesterday, have added back 16 basis points to reach 3.803% (the worst score since November 2011), Bunds go from -5 basis points to 3.955%, to +12.5 basis points at 3.080% (up 60 basis points in four weeks), Italian BTPs rise from 3.83% to 4.015%, an increase of 18.5 basis points (and 75 points since February 27)…and across the channel, “Gilts” are not spared with a 15 basis point increase to 4.98%.
