--- title: "Oil prices break through the $90 barrier! The outbreak of war in Iran ignites inflation concerns, traders flock to TIPS for hedging" type: "News" locale: "en" url: "https://longbridge.com/en/news/278189197.md" description: "International crude oil futures prices have surpassed $90, reaching a new high for 2023, due to the surge in energy prices triggered by the Middle East war. Investors are flocking to inflation hedging tools, leading to an increase in bond valuations. The demand for short-term inflation-protected securities (TIPS) has risen, with yields lower than traditional bonds. Barclays Capital analysts point out that TIPS are particularly attractive in the current situation, as their cash flows increase with rising CPI. U.S. Treasury yields have declined due to weak non-farm payroll data, reflecting a complex economic situation" datetime: "2026-03-07T02:12:05.000Z" locales: - [zh-CN](https://longbridge.com/zh-CN/news/278189197.md) - [en](https://longbridge.com/en/news/278189197.md) - [zh-HK](https://longbridge.com/zh-HK/news/278189197.md) --- # Oil prices break through the $90 barrier! The outbreak of war in Iran ignites inflation concerns, traders flock to TIPS for hedging According to Zhitong Finance APP, the settlement price of international crude oil futures has surpassed the $90 mark, reaching a new high since October 2023. WTI crude oil and Brent crude oil have recorded their largest weekly gains since 1983 and 1991, respectively. The April WTI crude oil futures contract rose by 12.21%, closing at $90.9 per barrel, with a cumulative increase of 35.6% this week. The May Brent crude oil futures contract increased by 8.52%, closing at $92.69 per barrel, with a cumulative increase of 27.88% this week. Due to the surge in energy prices triggered by the Middle East war, investors have flocked to the U.S. bond market to purchase inflation-resistant products, leading to some bond valuations reaching their highest levels in nearly a year. In the U.S. Treasury and inflation swap markets, investors can receive payments linked to the U.S. Consumer Price Index (CPI), but since the weekend attacks by the U.S. and Israel on Iran and Iran's retaliatory actions, the costs of these payments have surged alongside rising oil prices. The pressure to hedge against rising prices has supported demand for short-term Treasury Inflation-Protected Securities (TIPS), whose yield increases are lower than those of traditional bonds. Currently, the yield on 5-year U.S. Treasury bonds is about 3.7%, which is the highest level since April compared to the yield on 5-year TIPS (approximately 1.05%). This yield spread can serve as a reference indicator for the average expected inflation rate over the next five years. Jon Hill, head of U.S. inflation strategy at Barclays Capital, stated, "In the current situation, TIPS are very attractive because their cash flows will increase with the rise in the Consumer Price Index (CPI). Moreover, we know that rising energy prices will ultimately push up gasoline prices, which in turn will raise the CPI." ![cd62ff0d8c754032fed1cb9cb33e714.png](https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20260307/1772848649463831.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg) On Friday, the economic situation faced by investors became more complex. The unexpectedly weak U.S. non-farm payroll data for February led to a decline in U.S. Treasury yields for the first time this week. Meanwhile, the price of U.S. benchmark crude oil futures contracts rose to the highest level since 2023. The demand for protection is also evident in inflation swaps, where the cost of hedging against inflation has surged. The implied rate for one-year CPI swaps is close to 2.9%, compared to about 2.5% a week ago. Gang Hu, managing partner at Winshore Capital Partners, stated that short-term TIPS enjoy the prospect of higher interest payments adjusted for inflation and are almost certain that the Federal Reserve will not raise interest rates due to a temporary inflation shock caused by rising oil prices. Hu said, "Short-term inflation pressures will be very high. At the same time, short-term real interest rates should decline because the Federal Reserve may not raise rates due to inflation shocks." Despite a decrease in expectations for the Federal Reserve to ease monetary policy this year as oil prices rise, traders still believe there will be at least one rate cut. The rise in oil prices has pushed up the national average retail gasoline price in the U.S., which increased by about 3.32% on March 5, compared to just below $3 on March 1 In January, gasoline prices accounted for 2.9% of the U.S. Consumer Price Index. Omair Sharif, president of Inflation Insights LLC, stated that short-term inflation expectations for consumers are "largely driven by gasoline prices, as they are very visible and most people see gasoline price changes regularly each week." Sharif also noted that rapid fluctuations, like those seen during the Russia-Ukraine war in 2022, can also affect long-term inflation expectations. The U.S. government plans to release the CPI report for February next week, which is expected to show a year-on-year increase of 2.4%, unchanged from January. Since mid-2023, the overall inflation rate has been below 4%, having previously peaked at 9.1% in 2022. Phoebe White, head of U.S. inflation strategy at JP Morgan, stated, "Based on the recent rise in oil prices, the risk distribution of oil price trends may have significantly increased today, which will provide more support for TIPS." She mentioned that investor positioning is also a factor, as market inflation expectations declined in February due to concerns over disruptive risks from artificial intelligence and worries about private credit. This week, the strength of TIPS has been mainly concentrated in short-term bonds. The breakeven inflation rate for U.S. 30-year TIPS is about 2.22%, close to the lower range seen over the past year. Hu stated that one reason for this is that rising oil prices may lead to deflation in the long run, as increased gasoline spending suppresses consumption of all other goods. Additionally, the slowdown in U.S. economic growth has led to reduced tax revenues, coupled with increased military spending, which may widen the U.S. budget deficit and necessitate increased borrowing, thereby putting pressure on bond prices. Hu remarked, "The long-term fiscal situation during wartime is always worse. 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