Market Overview

Today’s opening market drops in the red once again, as oil prices surge, following a new round of escalation in the Middle East. In response, Iran has declared the Strait of Hormuz closed, with no end date specified. This has once again fueled speculation that the Fed will raise interest rates to fight inflation, making precious metals unappealing, as, unlike assets such as Treasury bonds, they do not offer yields in the short to medium term. It remains to be seen whether this bout of escalation will be long-lasting or fizzle out quickly, but we nonetheless expect a slow start to the day and the week.

U.S. Treasury Bonds

U.S. bonds have dropped following escalations and the subsequent jump in the oil price. But there’s more, as Japanese policy makers have signalled a clear focus on domestic ventures, encouraging a return of funds and investments to Japan. This is significant, as Japan holds considerable amounts of assets offshore, including U.S. treasury bonds, the sale of which could devalue the dollar and pressure the bond yields.

Left: U.S. government bonds 2 year yield, right: U.S. government bonds 10 year yield.

Economic Data

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