When oil prices are high and long-term bond yields approach 5%, risk assets start behaving like a seesaw with long-term bond yields: - When long-term bond yields fall, assets strengthen. - When long-term bond yields rise, assets weaken. Previously discussed here: https://(x.com)/qinbafrank/status/2090435324765970902?s=46&t=k6rimWsEbo2D2tXolYcM-A about the structural issues with long-term bond yields: high oil prices, fiscal deficits leading to massive treasury issuance, and the AI infrastructure debt issuance boom collectively pushing yields higher. The second and third points are structural (hard to fully reverse), but the first point—high oil prices—can be influenced. So, from this perspective, oil prices become the key variable. Even if the other two factors remain unchanged, a drop in oil prices could lead to a significant decline in long-term bond yields. Recent inflation data also shows that energy remains the key driver of inflation rebounds, rather than other factors. If oil prices can drop, even if there’s a rate hike next week, the market might interpret it as a “dovish hike,” with Walsh hiking once and then stopping. But if oil prices stay above $100 for an extended period, even after one rate hike, the market won’t be confident that inflation is under control, and there will likely be expectations of multiple future rate hikes. Key variables currently affecting oil prices: 1) First, let’s see what results come out of next week’s meeting between Iran and Gulf countries in Oman. 2) Will it pressure Trump into compromising?