UBS’s Mark Travathan says bond markets are under pressure from the Iran/Middle East shock, which has lifted energy prices, inflation expectations, and long-dated yields. He thinks bond vigilantes are currently ‘in hiding,’ but warns a disorderly move in yields could still spill over into equities.
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This ABC News Australia segment features a brief interview with UBS’s Mark Travathan on the bond selloff and its implications. Travathan argues the immediate driver is the invasion of Iran and the resulting spike in energy prices, which has pushed markets to reprice inflation and interest-rate expectations upward. He says the market is now focused more on inflation than growth in the near term. On the question of whether bond vigilantes are back, he says they are ‘in hiding currently,’ but also notes that the recent rise in yields is part of a longer narrative that began with the post-pandemic inflation shock. …
Immediate risk is a bond-yield repricing driven by Middle East and oil headlines; if the move stays orderly, equities may absorb it, but a disorderly jump would raise near-term selloff risk.
Over the next few weeks to months, the bond market likely stays volatile until the Middle East crisis settles, after which slower growth could allow yields to stabilize. Confirmation comes from easing energy prices and less upward pressure on inflation expectations; failure would be a prolonged oil shock.
The structural issue is that post-pandemic inflation shocks have reset the bond regime, making long-end yields much more sensitive to energy and geopolitical disruptions. Bond vigilantes re-emerge whenever inflation credibility weakens, even if the exact trigger changes.
The current bond bear market is being driven by the invasion of Iran and the resulting spike in energy prices.
He explicitly links the period to the invasion of Iran and says energy prices have jumped, forcing a repricing of inflation and growth.
Bond vigilantes are currently not active in a visible way.
He answers directly that they are in hiding currently.
The market is now focused more on inflation than growth, which has significantly changed interest-rate expectations.
He says inflation is the main focus and that expectations for interest rates have changed quite significantly to the upside.
What is driving the current bond bear market?
He says the invasion of Iran and the resulting spike in energy prices have forced markets to reassess inflation and growth. Markets are now focused on inflation, and expectations for interest rates have shifted sharply higher.
How close are we to the White House calming bond markets again?
He says we are very close. In his view, Trump is focused on long-term bond yields because they affect borrowing costs and the price of money, and he may need to rein in market moves with action.
Are the bond vigilantes back?
He says they are currently in hiding. He adds that the recent spike in energy prices has brought them back into the conversation, and expects ongoing volatility until the Middle East crisis is resolved.
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