Rates: big heat wave in the wake of the barrel and geopolitical news

The bond markets were hopeful the day before, as plans – and diplomatic channels – seemed to be aligning to avoid a flare-up. However, consistent rumors indicated that the United States could deploy assault troops for a massive ground operation on Iranian soil, undermining Pakistan’s efforts at reconciliation.

The risk of escalation towards something that Donald Trump has always claimed to reject and want to prevent can no longer be ruled out. The “risk-off” approach clearly does not suffice to offset the new surge of oil prices from $99 to $108 in 24 hours, with WTI rising from $88 to $95.

With the return of inflation expectations, T-Bonds are tightening by +8.8 points to 4.415%, the 30-year bond by +6.2 points to 4.85%, the 2-year bond by +9 points to 3.97%… and the 20-year bond jumping towards 5%. The rise in rates to the worst levels seen medium-term is causing stress, as evidenced by the VIX showing an increase of +8 points to 27.40, while the Nasdaq falls 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 sell-offs, a classic scenario when rates rise: Gold drops by -2.5% to $4,370, silver by -4.5% to $67.5.

On the macroeconomic front, weekly jobless claims in the United States settled at 210,000, slightly below expectations (211,000), after 205,000 the previous week… showing steadfast full employment figures but signals of deterioration are multiplying, with fuel prices rising by $4 per gallon on average across the American territory setting an inflationary climate.

In Europe, bond markets are also in full retreat. French OATs, which erased 8.5 points to 3.645% yesterday, have risen by 16 to 3.803% (the worst level since November 2011), German Bunds shifted from -5 points to 3.955%, rising by +12.5 points to 3.080% (+60 points in four weeks), Italian BTPs increasing from 3.83% to 4.015%, a rise of +18.5 points (and +75 points since February 27)… and in the UK, Gilts are not spared, with an increase of +15 points to 4.98%.