Heat is on

Around 2 am local time yesterday, Israel attacked Iran’s strategic infrastructure related to uranium enrichment and nuclear weapons. Their intelligence provided information stating that Iran was close to 60% uranium purity, the threshold necessary to create an atomic bomb. In the context of Hamas, Hezbollah, and the Gaza Strip, and the attacks of last October, Israel considered Iran’s nuclear arms proliferation an existential threat, and decided to attack. Market response? Equity indexes down, gold up, oil up, dollar flat and, as you can see below, U.S. 10 year yield up. If you wanted another sign that Treasuries are losing its status as safe haven, you have a sample here. We should not stretch this fact as conclusive, and as Mark Twain once said “rumors of my death have been greatly exaggerated”, but the evidence is piling up. The geopolitical landscape is heating up, as we should expect a response from Russia to Ukraine after the drone attacks a few weeks ago, and now from Iran to Israel. 13% of China oil imports come from Iran, and 20% from Russia. Escalation odds are increasing.

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