Third, fixed income markets, largely reward-free risk pre-Ukraine, now face a further knock-out blow. The pressure for rate rises justified by existing 5%+ inflation will be ramped up by the commodity scarcity from sanctions on 12% of the world’s oil production and much of its strategic metals. Add a negative credit effect on bond yields derived from civil unrest in countries relying on imported wheat to feed youthful, volatile populations; Ukraine, at 30% of global total, is the world’s largest supplier. The only cure is a lighter hand on the rate rise tiller from central banks now wary of recession 12-18 months from now. This contradiction is negative for long rates.
With a supply shock, the only way to control inflationary pressures is by either quickly solving it or cutting demand. Companies are pulling out of Russia every day. The Russian government is putting together plans to take over abandoned positions in domestic companies. Russian billionaires are being both sanctioned and censured in almost every OECD market. We are not going back to normal anytime soon; if ever. The repercussions of this economic, financial, business, and social unwind are only beginning to be felt.Click HERE to subscribe to Fuller Treacy Money Back to top