If We Can't Sell Oil, We'll Sell Treasuries
Trump will eventually realize the U.S. lost the war before it started. Will he throw in the towel when the 10YR reaches 5%? 6%?
If the UAE can’t get paid to sell their oil, they will sell Treasuries, knocking yields higher, which is precisely why Treasury Secretary Bessent swooped in with a UAE currency swap last month. Can’t have countries and regions dumping Treasuries when the U.S. Treasury auction calendar is about to pick up. The U.S. has bills to pay - past, present and future - which means more Treasury supply and upward yield pressure at a time when the Middle East is a net seller of Treasuries in the absence of oil sales.
If the U.S. Iran war gets bad enough, the Fed can take Fed Funds to zero and it still won’t matter - the 10YR will move higher if UAE and other nations start to dump long maturity Treasuries.
China could lean hard on the U.S. if it didn’t already last week. China wants oil from Iran. China holds $652 billion of Treasuries - its lowest level since 2008 - but enough to move the Treasury market and have leverage with the U.S.