Bond bears skid on oil slick

I noted this morning that Brent oil is tanking again and, just as importantly, that the forward curve is in free fall:

My target remains $50 for this move and technicals suggest a retest of January lows. The point I wish to make now is that neither a hawkish Fed nor bond markets are ready for this. It makes absolutely no sense to me for the Fed to hike as oil re-crashes. It’s inflation targets are going to fall away right before its eyes. That means US bonds are mispriced. For instance, the low in yields on the 10 year was 1.67% in January. It’s currently sitting at 2.27%:

For Australian yields it is similar and these have the added impetus of falling iron ore leading to rate cuts:

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About the author

David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific’s leading geo-politics and economics portal. He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.