Morning Bid: Yields give way

• Brent crude prices rose overnight as Iranian officials discussed retaining control of the Strait of Hormuz, raising concerns about prolonged energy supply disruptions heading into winter
• The 30-year U.S. Treasury yield reached multi-year highs on Tuesday, alongside German, French, and Japanese long-dated yields, potentially pressured by AI-related corporate borrowing competition
• Trump's approval rating fell to 33% with 80% of Americans (including 71% of Republicans) expecting extended U.S. involvement in Iran ahead of November mid-term elections

Summary: Yields Give Way

Key Developments:

Geopolitical tensions with Iran escalated sharply on Monday, driving Brent crude prices higher as Iranian officials discussed controlling the Strait of Hormuz. President Trump rejected extending the 60-day memorandum of understanding agreed in June and threatened military action against Oman if its Iran negotiations interfere with U.S. objectives.

Market Impact:

Long-dated government bond yields surged globally on Tuesday:

• U.S. 30-year Treasury yields rose significantly
• German, French, and Japanese long-dated yields hit multi-year highs
• Yield increases occurred despite reduced Fed rate hike expectations following recent soft economic data

The yield surge reflects concerns about:

• Prolonged energy supply disruptions potentially lasting months into winter
• Aggravated inflation pressures
• Increased sovereign borrowing needs for fiscal offsets
• Competition from AI-related corporate borrowing

Asian equity markets weakened in early trading due to these pressures.

Political Context:

Trump's approval rating fell to a current-term low of 33%, with 64% disapproving. Polling shows 80% of Americans expect extended U.S. involvement in Iran (87% Democrats, 71% Republicans). With November mid-term elections approaching, 38% of voters favor Democratic economic handling versus 35% for Republicans.

Upcoming Data:

Tuesday's releases include U.S. July import/export prices, housing starts, and industrial production (all 8:30-9:15 AM EDT). Home Depot reports Q2 earnings, followed by Target and Walmart later this week, providing crucial consumer resilience indicators.

The combination of geopolitical risk, inflation concerns, and rising yields creates challenging conditions for equity valuations.