You don’t have to outrun the bear





The bond market beatings will apparently continue until morale improves, though this time the sharpest pain was felt on the other side of the Atlantic. The US 10-year pushed up toward its highest level since roughly the turn of the century, but the picture looked considerably uglier in Europe, where the 30-year gilt broke 6% for the first time since 1997 and French CDS spreads blew out to Eurozone crisis levels, ultimately prompting the IMF to do its best Leslie Nielsen with a public assurance that bond markets are functioning in an orderly manner (roughly as encouraging as when your waiter assures you your food will be right out). We’ll let readers form their own judgments on the degree to which the chaos in European bond markets is tied to the recent launch of Operation Economic Outcast, but there’s no doubt that the ongoing disruption to energy flows is putting Europe in traders’ crosshairs heading into winter. Encouragingly, shipments of crude products through the Middle East appear to have returned almost to normal for now (a tough look for the Twitterati posters assuring everyone of financial apocalypse by May), but diesel and refined product supply remains heavily disrupted, which finally gave the White House the ammunition it needed this week to arm-twist a 100-million-barrel SPR release out of the Europeans. Whatever its long-run effect on prices, we think this whole situation is a decent microcosm of the White House’s overall strategy: squeeze relatively weaker allies and near-allies on energy and funding costs to drive concessions that will make a Western decoupling from China more feasible (and French President Emmanuel Macron’s public heel-turn on Chinese industrial policy this week may give readers some sense of how this agenda is proceeding).

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