Bonds Under Pressure Despite Oil Relief: 3-Minutes MLIV
Speakers
Mark Cudmore
— Executive Editor, Bloomberg Live / Macro Strategist
Summary
Mark Cudmore analyzes oil's short-term tailwind if the Iran-US deal holds, the difficult backdrop for bond yields despite falling oil, and the limited near-term UK gilt selloff despite long-term political headwinds.
- Oil prices weaker amid Iran-US deal cynicism; peace not fully priced, offering short-term support if deal holds.
- Oil's macro importance is structurally diminishing, reducing its influence on other assets.
- US Treasury yields remain sticky and drifting higher, even as oil collapsed, with hawkish FOMC adding pressure.
- Asymmetric risk of an oil price spike could push bond yields further up.
- Potential UK leadership change from Starmer to Burnham is widely telegraphed.
- UK gilts face limited further downside in the short term, but long-term political turmoil is a negative.
Ideas
Oil tailwind if peace deal holds.
Market cynicism about the Iran-U.S. deal means peace is not fully priced; if the deal does not break down, oil could see a continued small tailwind of support.
Bonds under pressure, yields may spike.
Bond yields have stayed sticky and drifted higher despite oil's collapse; after a hawkish FOMC the backdrop for bonds is difficult, and there is asymmetric risk of another oil spike from Middle East breakdown that could push yields even higher.
UK gilts face long-term political pressure.
Starmer's exit is highly telegraphed so UK gilts have limited short-term downside, and the seamless replacement by Burnham provides slight relief; however, long-term political turmoil will be traded as a negative for gilts.
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Speakers: Mark Cudmore · Tickers: BNO, TLT, UKGILT