Robert (infra 🏛️⌛️)

UK BONDS MELTDOWN Driven by higher oil prices (and resulting inflation concerns for net importers), sovereign debt markets are facing a massive sell off In the UK, their 30-year yield just hit the highest level in 28 years (since 1998)

BREAKING: UK GOVT BOND YIELDS SURGE TO HIGHEST SINCE 2008 Amidst a political crisis in the UK, Gilt yields are surging over 15bps today to the highest level since 2008 This is undoubtedly dragging rates higher across the world

Oil breaking out = higher inflation, higher rates Back in 2022 when Russia invaded Ukraine, the price of oil increased 15% within 2 months. Oil seen here in white, hit its peak of $120 a barrel a few months after. Overlaying CPI in green, we see inflation is essentially a perfect fit to the price of oil. So what did the US do? Inflation was becoming politically untenable. Well, we ran down the strategic petroleum reserve, seen in red The US has long depended on the ROW to purchase our debt, and because of the massive fiscal spend following COVID, we needed every buyer we could get. There was a problem, though. All of those countries that had long bought our debt, they also were net importers of oil (Japan, South Korea, Eurozone, etc.). These countries were short energy, just as energy was skyrocketing. Not a good position. At the same exact time, these net energy importers were being pushed into deficits because of the higher cost of energy. For example, USD/Korea, USD/Yen and USD/Euro (seen in green, yellow and purple) started to massively weaken against the USD. You can see their currencies lag the price of oil by a couple of months. These countries needed energy. They didn't need treasury bonds- they need gasoline and diesel so their economies didn't immediately collapse. Now let's lay the US 10 year rate in (seen in blue). I removed Euro and KRW and left Yen in yellow, for simplicity's sake (but you can see above what the trend was for all 3). Sure looks like the Yen (yellow) and US 10yr rate (blue) are a perfect, direct fit with almost 100% correlation [Oil is still in white, strategic petroleum reserve still in red] This makes sense if you have hundreds of billions of dollars of treasuries that aren't doing you any good because you're short energy and oil is ripping (importantly, oil is appreciating faster than the yield on those treasuries). Oil is in the process of breaking out. If this trend continues, not only will we see higher inflation (ex in first slide), but we should also see more selling of treasuries, at a time when we are needing to roll over $9T in debt in the coming 12 months, and let's not forget the $1.8T deficit we are running (with full employment, during peacetime) They ran the strategic petroleum reserve down by ~350M barrels in the year following the RU/UA war, and there's only another 360M barrels left before it's bone dry. We know foreign demand of treasuries has been waning for close to a decade. Banks are traumatized from the hundreds of billions in unrealized losses they faced on their treasury positions. Fed, the largest buyer, is saying not only will they not be buying, they'll continue QT. All at a time that we are running historic deficits, issuing massive avalanches of treasury supply to fund, and in a year in which we need to roll over $9T in debt. Something is going to break if oil continues higher.

Japanese bond yields are absolutely soaring, now up 7bps to the highest since May 1997 Highest level in 29 years Net importers of energy are getting absolutely hammered, but as I've been pointing out recently: If you're looking for a crisis, it'll come out of UK not Japan

BREAKING: UK GOVT BOND YIELDS SURGE TO HIGHEST SINCE 2008 Amidst a political crisis in the UK, Gilt yields are surging over 15bps today to the highest level since 2008 This is undoubtedly dragging rates higher across the world

Periodic reminder that wealth inequality, and specifically the net worth of the top 1%, is directly correlated to our trade deficit As the trade deficit widens: 1. The average American's wages decrease 2. Top 1% wealth increase 3. Corporate profits increase

The US debt was never designed to be repaid in full, that’s by design in the post-1971 fiat system. The Fed enables endless rollover: issue new bonds to pay old ones + interest, monetize deficits via money printing. This fuels malinvestment booms then busts, with inflation acting as the hidden tax that erodes savers while bailing out debtors and government. There is no real constraint without sound money. We’re kicking the can down the road until currency debasement or crisis forces the issue.