US Treasury Chief Sees Oil Plunge to $40 After Iran Conflict Ends, Bond Yields to Ease
SingTao · 2 SOURCESabout 3 hours ago2 MIN
Summary
US Treasury Secretary Scott Bessent forecast on Friday that oil prices could plummet to $40 per barrel once the Iran conflict concludes, with the market facing severe oversupply from new supply sources. He attributed the recent surge in US bond yields to elevated energy prices, noting the correlation between oil and interest rates has reached historic highs. Bessent also sought to downplay concerns about Norway's sovereign wealth fund potentially reducing its US Treasury holdings by up to $75 billion .
Key Points
- Once the Iran conflict is resolved, oil prices are expected to fall significantly, with potential decline to $50 or even $40 per barrel due to severe market oversupply and influx of new production capacity
- Brent crude currently trades around $96 per barrel, approaching its highest level since July 2023, while NY crude stands at approximately $91 per barrel
- Bessent stated that interest rate levels have reached their highest historical correlation with oil prices, suggesting bond yields will retreat as Middle East tensions ease
- Norway's sovereign wealth fund may reduce US Treasury holdings by up to $75 billion (approximately HK$585 billion), though Bessent dismissed this as merely reallocation to higher-yielding US assets
- The Treasury Secretary expressed strong support for Norway's shift toward securities issued by Fannie Mae, Freddie Mac, and Ginnie Mae, which offer yields above those of standard US Treasuries
Why It Matters
For Hong Kong investors, the anticipated decline in oil prices and bond yields carries significant implications for portfolio strategy. Lower energy costs could ease inflation pressures globally, potentially creating room for the Federal Reserve to adjust monetary policy, which would affect Hong Kong's linked exchange rate system and borrowing costs across the territory . Additionally, as US bond yields retreat, the relative attractiveness of different asset classes may shift, influencing how Hong Kong's substantial foreign reserve holdings are managed.
For Hong Kong investors, the anticipated decline in oil prices and bond yields carries significant implications for portfolio strategy. Lower energy costs could ease inflation pressures globally, potentially creating room for the Federal Reserve to adjust monetary policy, which would affect Hong Kong's linked exchange rate system and borrowing costs across the territory . Additionally, as US bond yields retreat, the relative attractiveness of different asset classes may shift, influencing how Hong Kong's substantial foreign reserve holdings are managed.