Global Yields and Stagflation Risk (with Paul Allen)

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NDX

RUT

Oil

Metals

USD

Brandywine Global 7.8
Asset Manager $55.00B
Carol Lye 8.0

Global Yields and Stagflation Risk (with Paul Allen)

yields

If the war goes on for longer, beyond April, and we get a further spike in oil to what's $100 on a sustain basis... we can see yields really going up. Based on oil price impact on inflation and fiscal deficits, forcing central banks to hike rates.

Asks where yields are heading given conflicting messages.

Paul Allen
Carol Lye

Current yields price in sustained $85/bbl oil. If war goes beyond April and oil spikes to $100+ sustained, yields could go up significantly. However, greater global growth destruction from supply shock could then bring DM yields down.

US 10-year could hit 4.5% but may still play in 3.75%-4.50% range. Distinction between DM and EM yields.
Asks for outlook under more pessimistic $140 oil scenario.

Paul Allen
Carol Lye

Initial spike in treasury yields to ~4.5%, but eventual backup in yields as global growth destruction kicks in (PMIs already slowing). Yield curve may flatten then steepen.

Growth destruction not fully priced in.
Asks how real stagflation risk is.

Paul Allen
Carol Lye

Stagflation risk increasing by the week. Longer war affects petroleum derivatives, plastics, fertilizers. Increased probability if war lengthens into April.

Internally preparing for longer war than expected.
Asks about USD upside and post-conflict reversal.

Paul Allen
Carol Lye

Energy shock disproportionately affects non-US growth, weakening their currencies. DXY could go to 102-103. Once war ends, medium-term weaker USD thesis remains intact due to deteriorating US fiscal position and de-dollarization trends.

Similar to 2022 Russia-Ukraine war pattern where dollar saw depreciating pressure post-settlement.

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