1. War – This summer, the collapse of the US-Iran ceasefire agreement and Ukraine's offensive against Russian oil refineries caused diesel prices to surge. Diesel price increases are often more likely to trigger inflation than gasoline price increases. Futures trading foreshadows future fuel price increases. Over the past week, October diesel futures prices rose by approximately 13%.
2. Deficit – Investors are concerned about runaway government spending. The total US debt surpassed the $40 trillion mark for the first time last month, a milestone that underscores economists' warnings about the unsustainability of US fiscal conditions. The ratio of US public debt to GDP is rapidly approaching its highest level since World War II.
3. Term Premium – The term premium has recently risen, indicating investor concerns about fiscal policy or the increasing supply of Treasury bonds. The term premium is generally defined as the premium reflected in Treasury yields excluding investors' expectations of short-term interest rates set by the Federal Reserve.
4. Interest Rate Bets – Federal Reserve Chairman Warsh's speech in Jackson Hole in late August eased concerns about the Fed's insufficient efforts to curb inflation and pushed yields higher. Meanwhile, U.S. Treasury Secretary Bessant's plan to buy back more long-term bonds had a short-lived effect.
