2022 called. It wants its geostrategic macro zeitgeist back.

If you felt the discomfiting twinge of déjà vu amid this last week’s price action in crude, bonds and equities, you’re not alone.

The analogue isn’t perfect. No historical parallel is. History rhymes, it doesn’t repeat. But now, as then, investors are confronted with a war-driven surge in energy prices and all the attendant risks, including an inflation uptick that central banks are powerless to address (rate hikes can’t fix supply shocks) but nevertheless compelled to consider lest monetary policy should make a bad situation worse by stoking demand.

At the same time, the fiscal trajectory across advanced economies is generally poor and in many cases viewed as wholly unsustainable. That means borrowing to fund stimulus and subsidies chances higher yields, raising debt servicing costs for already-stretched government finances in a fiscal doom loop. That risk’s particularly acute for energy importers who face a third, (inter)related risk from the FX-pass through channel.

That’s all part and parcel of the same post-pandemic, war-era macro regime shift which comes up again and again in these pages. One corollary — and regular readers are by now tired of hearing this — is an unstable stock-bond correlation. Suffice to say a generation of investors indoctrinated by the 60/40 religion are experiencing a crisis of faith.

The figure above’s simple enough: It shows the one-week return for SPY and TLT, which is to say for stocks and bonds. Last week, you lost on both counts. Benchmark US equities were lower and 20+ year US Treasurys traded heavy into the policy / inflation implications of a historic one-week surge in oil prices.

That the long-end of the Treasury curve couldn’t find its footing in the presence of a disastrous US jobs report which included a deeply negative NFP headline, a higher-than-expected UNR and the lowest participation rate in years, was a testament to the market’s concerns.

Further, the fact that the weekly selloff in benchmark US debt was split almost evenly between breakevens and reals speaks to the idea that traders are pricing the upside inflation risk as less scope for Fed easing.

That’s double trouble for a US president demanding lower short-end rates and hoping for lower longer-term borrowing costs.

“The [2022] surge in oil prices was accompanied by a sharp widening of five-year breakevens, which peaked at 376bps a couple of weeks after crude had retreated from the >$120/bbl extremes,” BMO’s Ian Lyngen remarked.

The starting point for both’s much lower this time, but if five-year breakevens play catch up to where Brent traded at week’s end, that’d be “good” for another 35bps or so of upside for nominal yields, all else (i.e., reals) equal.

In the same note, Lyngen said that although “an energy shock hasn’t historically produced the type of inflation the Fed concerns itself with,” a move that sees oil back above $100/bbl for an extended period would compel the FOMC to worry “about the potential pass-through to core inflation.”

So, maybe US twos were oversold at 3.63% (Friday’s pre-NFP yield-highs), but maybe not. It depends on how long the Strait’s closed.

Speaking of a possibly oversold front-end and pressing questions about the read-across from the war for monetary policy, two-year yields in Germany rose a remarkable 30bps on the week.

“A week ago, anyone betting on an ECB rate hike was staking out a lonely, contrarian position,” Bloomberg’s Alice Atkins wrote Friday. “Now, with the Iran war threatening to stoke inflation, money markets are certain the central bank will raise borrowing costs in 2026.”

That’s quite a turn. “Even the mere possibility that we are about to see a resumption of inflation vol on the danger of sustained disruptions to energy means risk[ing] a reset to higher rate vol [too],” Nomura’s Charlie McElligott said, calling the European front-end “patient zero” for a burgeoning VaR shock.

Of course, there’s always a chance Trump blinks. “US politics says March de-escalation,” BofA’s Michael Hartnett wrote, noting that Trump’s approval on the economy and inflation are “back at the lows.” The White House, Hartnett went on, “must reverse” the jump in oil prices.

On Saturday, AAA said regular gas in the US was $3.41, up 14% in the short space of a week.