Deck 5 — Macro and Strait of Hormuz

What is the difference between inflation level and inflation volatility?

The level is expected inflation. Volatility is uncertainty about how far actual inflation may move around that expectation.

Can inflation decline while term premium rises?

Yes. Average inflation can fall while uncertainty about inflation, policy, and fiscal conditions stays elevated.

Why does reduced forward guidance raise term premium?

It makes the future rate path less predictable, increasing the uncertainty investors bear when holding duration.

How is fiscal uncertainty different from supply?

Supply is how much debt is issued; fiscal uncertainty is the risk future deficits and financing needs become worse or less predictable.

Why can a geopolitical shock move yields in either direction?

Safe-haven demand can lower yields, while higher oil prices, inflation risk, and fiscal spending can raise them.

Why is the Strait of Hormuz important?

A large share of global oil trade passes through it, so disruption can create a major energy supply shock.

What if a Hormuz disruption is brief and contained?

The initial move could be lower Treasury yields because of flight-to-safety demand.

What if Hormuz is disrupted for weeks or months?

Oil and inflation uncertainty would likely rise, pushing term premium and possibly the short-rate path higher.

Why is the 10-year reaction to a Hormuz shock not automatic?

Inflation pressure pushes yields up, while recession fears and safe-haven demand push them down.

What is my polished Hormuz answer?

A contained strike could initially lower yields through safe-haven demand. A sustained disruption would be more inflationary and could raise term premium, although a severe recession could later reverse the move.