Bonds’ Oil-Driven Selloff Stalls as Growth Concerns Return

Treasuries wiped out an early slump as investor focus turned to the risk that surging energy prices will become a drag on economic growth.

Yields were lower by about a basis point at midday in New York after erasing increases of six to seven basis points. They had risen along with oil benchmarks after US President Donald Trump took a threatening tone toward Iran in a speech. Bloomberg's Ira Jersey and Robert Tipp, PGIM Fixed Income Managing Director, Chief Investment Strategist, and Head of Global Bonds join Carol Massar and Tim Stenovec to discuss what this sell off means for markets. US shale drillers are expected to follow President Donald Trump’s call for higher oil production — but not just because he said so.

The 68% surge in crude prices since the US and Israel commenced attacks on Iran roughly five weeks ago is incentive enough to compel American oil executives to ramp up output, according to observers as diverse as Citigroup Inc., Enverus Inc. and government analysts at the Energy Information Administration.

Shale explorers require oil prices somewhere between $62 and $70 a barrel to turn a profit on new wells, according to the Federal Reserve Bank of Dallas. As of midday Monday, the US benchmark was close to $113.  “Elevated prices are certainly going to increase production in the United States,” Mike Sommers, chief executive officer of industry lobby group the American Petroleum Institute, said during a Bloomberg Television interview. “You are going to see that over the course of the next few months.”

Billionaire wildcatter Harold Hamm was the first prominent shale boss to publicly commit to lifting production last week when his Continental Resources Inc. boosted its capital budget and output target. Even among rivals that have yet to sign on to pumping more crude, hedging has been rampant to lock in elevated pricing for the barrels they’re already planning to extract.

Read More: Hamm’s Continental Is Boosting Oil Output as Prices Soar

The Trump administration has repeatedly called on US companies to increase crude output, often to no avail because management teams were loathe to sink capital into new wells when oil prices weren’t high enough to meet profit thresholds.

But that’s all been turned on its head since the biggest oil-market disruption in history kicked off with the Feb. 28 attacks on Iran and subsequent  - Billionaire oil wildcatter Harold Hamm’s Continental Resources Inc. plans to increase production as the war in Iran sends crude prices soaring to the highest in four years.

“Continental is increasing our capital budget, which will increase production,” Chief Executive Officer Doug Lawler said in a statement to Bloomberg.

Continental is the first prominent US oil producer to say publicly that it plans to ramp up output amid the Iran war, which has crippled supplies from the Persian Gulf and sent crude futures soaring 50% in four weeks to more than $100 a barrel. Hamm is among US President Donald Trump’s most vocal supporters in the oil industry.

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