NEW YORK: The US Treasury market has erased all its gains for the year as the war-driven surge in oil prices sets investors panicking about both inflation and growth risks.
A Bloomberg gauge of its performance turned negative for the year after losing 1.7% since the end of February.
It’s a milestone that comes as stagflationary angst sends yields higher and forces Wall Street to reel in its expectations for lower interest rates in the United States over the next year.
“Energy-driven inflation and policy uncertainty continue to weigh on long-end Treasuries,” Morgan Stanley strategists including Bradley Tian wrote in a note.
Since the United States attacked Iran, investors have been demanding higher yields as compensation for the risk that higher energy prices that lead to resurgent inflation will keep the US Federal Reserve from cutting rates – even in the event of an economic slowdown.
Bonds from the United States to Japan and Australia have dropped, with a gauge of global debt also giving up its year-to-date gains.
“Geopolitical uncertainty and heightened cross-asset volatility are likely to persist in the near term until markets gain confidence in a stabilisation of the Iran conflict,” said Bob Savage, head of markets macro strategy at BNY. — Bloomberg
