THE MARKET MAY BE CLOSER TO AN END THAN THE HEADLINES SUGGEST.
The biggest development I’m watching is Hormuz.
Gulf crude flows have recovered dramatically. Between escorted shipments, pipelines and alternative routes, estimates have total flows approaching 17 million barrels per day versus roughly 21 million prewar.
That is a BIG difference from where we were.
Meanwhile, Iran is under enormous economic pressure. Oil exports have been severely constrained, trade routes disrupted and its currency has been under tremendous pressure.
Iran has already proposed reopening Hormuz in exchange for concessions. Trump rejected the terms.
That doesn’t guarantee a deal, but it tells me something important:
The leverage is changing to favor the US.
Now we connect this to rates.
The Fed is signaling patience, economic data are softening and expectations for an October hike have fallen sharply. Jobs numbers came in way under expectations along with big negative revisions. Recent inflation numbers have also come in under expectations.
Yet the 10YR refuses to stay down.
Why?
Oil and geopolitical risk remain embedded in the long end. And don’t forget JAPAN.
If the Bank of Japan continues tightening while the Fed pauses, higher Japanese yields can make U.S. Treasuries relatively less attractive to Japanese investors and add another source of pressure to our long end.
That is why I continue to believe a real Hormuz agreement could be the missing catalyst.
Take geopolitical risk out. Get oil moving freely. Give inflation expectations room to breathe.
Then maybe the bond market can finally turn.
We don’t just need lower oil. We need PEACE and we need Japan to finally stop tightening.
US10YR 🔺 5.28% 😣
