In the days after the 9/11 attacks in 2001, interest rates fell sharply, as investors fled to the safety of bonds due to the uncertainty of what was happening.
In the weeks leading up to GW Bush’s invasion of Iraq in 2003, interest rates plummeted – with the 10-Year Yield falling 1/2 percent!
Similarly, when COVID news surfaced in 2020, rates plummeted and continued to fall in the face of extreme uncertainty.
These events illustrate why today’s rate increase could be construed as good news, as it implies that investors are not overly concerned about Epic Fury blowing up into something much bigger.
And, as I have stated many times previously, the bond market is often a far better predictor of future events than the best analysts on the planet, e.g. wisdom of crowds.
NOTE: While I am commenting on the financial repercussions of Epic Fury, I do not mean to make light of the seriousness of the situation in any way. I am avoiding the political and moral repercussions, as this blog is not the place for them.
Why Did Rates Go Up?
Rates went up because investors apparently don’t think Epic Fury will escalate and because oil prices went up.
Higher energy prices spook bond investors because they often portend higher prices in other goods and services, sparking inflation fears.
What Happened With Other Recent Iran/Middle East Events?
When the U.S. killed Iranian General Soleimani in 2020, both oil prices and rates went up in the days following.
When Hamas’s October 7th attacks took place in 2023, oil prices again spiked and rates edged higher.
When the U.S bombed Iran’s nuclear facilities last year, oil prices again spiked while rates edged higher.
But – in all cases, oil prices and rates eventually settled back to where they were prior to the events.
So Should Everyone Panic Lock Today Before Rates Shoot Higher?
Absolutely not.
That is the point of this blog. Based on past events and based on the accuracy of bond and oil market investors, it is unlikely that rates will continue to rise or even stay up.
They will very likely fall again – like they did in the past.
The Importance of Oil Prices and What Could Make Me Wrong
While oil prices did go up, it is very important to note that they only went up by $3 to $4 per barrel.
This indicates that oil investors also believe that the war will not escalate, as a major escalation could shut off the transportation (Straits of Hormuz) of 20% of the world’s oil supplies.
If the war does escalate (and it still could), and Iran is able to shut down the Straits of Hormuz – oil prices would likely spike by as much as $30 per barrel – and we’d see all hell break loose (and potentially much higher rates).
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