Founders: Commodities Likely to Continue Outperforming- Analysis

War, Oil, and the Return of Term Premium

TS Lombard argues the most likely outcome of the Middle East energy shock is a return to roughly $80 oil in Q3, avoiding a severe stagflationary regime. However, repeated supply shocks are raising bond term premiums globally, weakening bonds' traditional hedging role and reinforcing a post-COVID shift toward structurally higher inflation uncertainty.

As that happens, investors start to realize that the bond is simply not providing the hedging that they need (and probably gradually transition to a basket of commodities). That is exactly what is happening right now.