After talking about Brent and the change in the probabilities of a rate hike in October, we should now turn to U.S. Treasury yields. Right now, we can see that the yields on 2-year, 10-year, and 30-year Treasuries are temporarily moving in sync with crude oil prices. This is a good thing.

For bond-market yields, the most dangerous states this week are:

a) Brent and bond-market yields diverge, and the risk of a second rate hike is repriced. Then the yields on 2Y/10Y/30Y rise collectively. In this scenario, the 2-year yield sees the fastest increase, 10-year comes next, and the 30-year yield rises the slowest.

b) A typical bear steepening yield curve: the 30-year yield leads higher, the 10-year follows, and the 2-year yield can’t rise. This implies that long-end Treasury selling remains out of control. The trading logic shifts from “whether there will be a rate hike” to “long-term inflation, fiscal supply, term premium, and high-yield compensation.” This is a risk in the bond market.

c) A bear flat (bear flattening) trend: the yields on 2Y/10Y/30Y accelerate upward together. This means it’s not that October will see a single rate hike; instead, the Fed’s neutral rate is being raised, and we’re entering a rate-hiking cycle—one of the most unfavorable outcomes for risk assets.

d) Bear flat, pro version: the 2-year yield rises, the 10-year stays flat, and the 30-year yield falls. This suggests the market is starting to worry that Fed rate hikes will damage the economy—short-term policy risk worsening plus long-term growth expectations deteriorating. This is also unfavorable for risk assets. It’s particularly unfriendly to equities such as blue chips in the stock market, including banks, cyclical stocks, small-cap stocks, and highly leveraged companies.

e) An extreme bear steepening: the 2-year yield plunges while the 30-year yield rises. Market concern shifts from worrying about rate-hike risk to worrying about bond-market risk.

The above yield-curve patterns are just examples. The actual situation depends on this week’s macro data and movements in international crude oil prices. As I mentioned in my macro framework for this week, the macro mainline is becoming more diverse and complex—so it’s difficult to tell what the market is pricing just by looking at data alone. But observing the simplified picture of Brent versus the October rate-hike probability can tell you something, and observing the bond-market yields’ trend will make the pricing logic even clearer! #黄金跌至4144美元