Amol Shitole

Higher oil prices generate fiscal surpluses for most GCC economies, which benefit from pegged currencies and Fed policy alignment, making the region's fixed income attractive.

Clearly a bond market is sniffing stagflation here. We have seen less than one rate cut priced into the bond market as things stand. The energy shock is driving up short-term inflation expectations, forcing the Federal Reserve to abandon its easing cycle. Higher-for-longer interest rates in a low-growth environment will continue to drive up long-end yields, which inversely destroys the capital value of long-duration Treasury bonds. SHORT. Stagflation is the worst possible macroeconomic environment for long-duration fixed income. The energy shock causes such a severe global recession that the Fed is forced to cut rates dramatically to save the economy, which would cause long-duration bonds to rally.