C.A. Cardenas

After one of the most turbulent weeks in the Treasury market in years, bond yields pulled back slightly on Friday. The 10-year fell to around 4.56%. The 30-year, which briefly touched 5.197% on Monday its highest since July 2007 retreated to 5.12%. On a week like this one, a two-basis-point dip feels like news.

It isn't, really. The forces that drove yields to multi-decade highs are still very much in place.

The Hormuz Effect

The clearest way to understand this week's bond market chaos is to start in the Persian Gulf. Since late February, the Strait of Hormuz the narrow passage through which roughly 20% of the world's oil supply flows has been effectively closed. The US-Iran conflict that began with airstrikes in late February triggered an IRGC blockade that has cut global oil output by an estimated 10 million barrels per day. The International Energy Agency has called it the greatest global energy security challenge in the history of the oil market.

On Monday, the 30-year US Treasury yield crossed 5.19% its highest level since July 2007, nearly 19 years ago. The last time long-term borrowing costs sat this high, Bear Stearns was still solvent and the phrase "subprime crisis" hadn't yet entered the public vocabulary. That context is worth sitting with for a moment.

Bond yields don't move like this without a reason. In this case, several are converging at once.

What's Driving the Selloff

The most immediate pressure is inflation. Consumer prices rose to a three-year high in April, and with oil elevated by an ongoing US-Iran standoff, the path back to the Fed's 2% target looks longer than it did six months ago. When inflation expectations rise, long-term bondholders demand higher yields to compensate and that's exactly what's happening.

If you've ever tried to get a handle on US recession risk, you know the drill. You open a tab for FRED to check the yield curve. Another for the VIX. A third for the latest ISM manufacturing data. Somewhere along the way you're cross-referencing credit spreads with labor market figures and wondering why none of it adds up to a clear answer.

The data was never the problem. There's plenty of it. The problem is that nothing tells you how much any single indicator actually matters or how to weigh it against everything else.

That's exactly the gap Recession Tracker was built to close.

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