Long term Treasuries continued to climb higher with surging oil prices partially to blame. Oil is at the highest levels in a year as inventories fell below a critical level. There are few options to combat the unrelenting advance. Western Democracies have essentially declared war on the fossil fuel industry and companies and countries alike have greatly reduced capital spending.
There is a long lead time and billions of dollars required to develop large oil fields. If the Western Democracies are successful or are serious about their intents, why would any organization invest billions to develop a product that governments are trying to eradicate via bureaucratic fiat? The sunk costs would be/are huge.
Oil is the ultimate geopolitical weapon and unfortunately alternative green sources are not producing the yields projected. According to the IEA and other organizations, green energy output is only 15% to 25% of forecasted yields.
Our adversaries recognize today’s environment and is/will take complete advantage to weaken the Western Democracies to enrich or ensure their survival.
Commenting further about the Treasury market, the five-year Treasury auction produced the highest yield in 16 years. JP Morgan stated the bond market is at an inflexion point. The Bank stated, “the last 15 years were not normal, we got to a structural low and we are going to revert to something that is more normal.”
If normalcy does return, the selloff in longer dated Treasuries has considerably more to go.
Equites struggled for direction with losses pared by the close. Energy greatly outperformed as crude closed about 4% higher. The techs also rebounded after President Biden touted the promise of AI with advisors.
Last night the foreign markets were mixed. London was down 0.32%, Paris up 0.26%, and Frankfurt up 0.04%. China was up 0.10%, Japan down 1.54% and Hang Seng down 1.36%. Futures are little changed. The 10-year is off 9/32 to yield 4.65%. Yields are now at 16 year highs and the Treasury market is on the verge to have a record three consecutive years of losses.
