Oil goes up. Inflation expectations go up. Bond yields go up. Governments have to pay more to borrow.
Then you have countries already running huge deficits trying to borrow even more.
That’s the ugly loop.
And now you have the Dutch central bank saying, basically, we want some of our gold somewhere we can get to it faster if things get bad.
That doesn’t mean the US is losing control of its gold or that everyone is abandoning Treasuries.
But when bonds are getting hit and central banks are making their gold easier to deploy at the same time, I’m paying attention.
The next problem isn’t just expensive oil. It’s what happens when the world starts demanding higher rates to lend governments money.
- Benchmark borrowing costs around the world are extending their multi-decade highs as nerves over inflation, higher rates and high debt remain in focus.
- Central banks in major economies, including the U.S., Japan and euro zone, are widely expected to raise interest rates this month.
- The cost of risk is rising globally, George Maris, chief investment officer at Principal Asset Management, told CNBC.
War raising price of money. Problem for global economy…
Yellow lights are flashing in the most important market on the planet: The US bond market.
The turmoil is being driven by a confluence of separate but related forces. The US war with Iran is heating up again, driving up US defense spending and the cost of oil, gasoline, diesel and jet fuel.
That energy spike is reinforcing inflation worries in a bond market already nervous about America’s $40 trillion mountain of debt. The yield on the benchmark 10-year Treasury, which is a measure of how much the US government pays to borrow more money, climbed on Wednesday to the highest level in nearly three years.
The bond market stress will make it more expensive for consumers to get a mortgage, for businesses to borrow and for Washington to pay the bills.
The risk is that this situation morphs into a doom loop, where the more the war intensifies, the more it will spook the bond market and slow the economy and stocks.
“It feels like there is no end to the inflation problem, the war or the deficit in the near term,” said Hardika Singh, economic strategist at Fundstrat Capital, an asset management firm.
Netherlands moves 86 tons of gold out of USA due to ‘geopolitical unrest’…
The Netherlands has moved 86 tonnes of its gold stock out of the US and Canada to London due to ‘increasing geopolitical unrest’.
The move follows alarming remarks that gold is ‘no longer safe’ in President Donald Trump’s America.
Moving these stores to British soil would ‘spread risks’ and would ensure the ‘quickest’ opportunity for DNB to deploy the sale of gold ‘in a crisis situation,’ the bank wrote in a statement.
Gold reserves held in London could be traded more easily than those held in New York and Ottawa.
The transfer would also create a ‘more balanced distribution’ and further help strengthen the bank’s ‘crisis preparedness’.
‘We assume that we will never need to deploy the gold, but it is nevertheless necessary to strengthen our resilience and preparedness,’ said DNB President Olaf Sleijpen.
Oil is now feeding directly into the bond problem
Brent crude has moved toward $95, while the renewed US Iran fighting is creating fears that higher energy prices will persist.
That matters because the bond market is no longer getting the usual recession argument that weak growth should automatically mean lower rates. Higher oil can weaken growth and keep inflation elevated at the same time.