Brent rose 6.63% last week to $94.39/bbl and the forward curve is also moving
higher. 12-month Brent futures climbed to $79.16/bbl on Friday, a two-month high
and nearing the May Iran-conflict peak of $83.58/bbl as markets re-price the
risk of a prolonged Strait of Hormuz shutdown and sustained higher energy
prices. That has flowed into inflation pricing: U.S. 1‑year inflation swaps
jumped 34.5bp last week to 2.24% (largest weekly rise since March); euro‑area
1‑year swaps rose 25bp to 2.71%. Concurrently, 10‑year U.S. Treasury yields rose
4.2bp to 4.73% and 10‑year German bund yields gained 5.4bp to 3.26%. Deutsche
Bank notes the energy shock is moving from spot prices into next‑year inflation
expectations. Treasury expansion of long‑bond buybacks may ease yield pressure
temporarily, but if the oil forward curve remains elevated bond markets will
need to price greater inflation uncertainty.
