global bonds putting together their best weekly streak since the US strikes on Iran. catalyst seems to be oil finally calming down after that initial shock.
for anyone who’s been holding through the past few weeks of volatility this feels like a bit of a breather. the logic is fairly straightforward — oil easing takes pressure off inflation expectations, which reduces the case for central banks to stay hawkish, which gives yields room to pull back.
curious what others think. genuine shift or just a short-term relief bounce before the next spike?
I’ll take it honestly. Been holding a mix of investment grade corporates and the last few weeks have been rough. Nice to see some recovery.
I think there’s more to it than a dead cat bounce. If oil stabilises at current levels, the inflation impulse from energy softens meaningfully. Markets priced in a very aggressive rate path very quickly after the strikes. Even a modest unwind of that positioning gives bonds room to run.
The question is whether geopolitics stays quiet enough to let the rally hold.
The oil connection is the key variable here. The initial shock from the strikes sent energy haywire and bond markets priced in the worst case almost immediately. Now that things are stabilising — or at least not escalating further — you’re seeing those panic-driven rate hike bets unwind.
I’ve been slowly adding duration over the past couple of days. Still cautious given the backdrop but the risk-reward is better than it was last week. The fact that we’re getting a decent rally despite all the geopolitical noise is actually an encouraging signal.
hi, relatively new to bonds here. saw this thread and wanted to ask — why do oil prices affect bonds so directly? I get that inflation is involved somewhere but not sure of the exact mechanism
Higher oil prices raise energy costs across the economy. That feeds into inflation. When inflation rises, central banks tend to hike interest rates to cool it down. Higher interest rates mean newly issued bonds pay more, which makes existing bonds with lower coupons worth less. So bond prices fall and yields rise.
It works in reverse too. When oil comes down, inflation expectations ease, rate hike bets get scaled back, and bond prices recover.
Energy is one of the fastest-moving inputs into inflation which is why bond markets watch oil prices very closely.
And in the current environment it is amplified because markets were already on edge about inflation before the conflict started. Any oil shock hits harder when the backdrop is already hawkish.
The context matters. A 10% oil move in a low-inflation environment barely registers in bonds. The same move now gets magnified.
Sushant’s framing is right. The base case matters as much as the shock itself.
My view is that if oil holds in the current range and there’s no major escalation in the next 2 to 3 weeks, the rally has legs. The positioning unwind still has room to run. But one bad headline from the Middle East and we’re back to last week’s levels quickly. Not a trade I’m sizing up aggressively — more a case of staying with existing duration rather than adding.