In our Sep 24 update [see: Oil Prices Pressure Bonds] we noted the effect of rapidly rising oil and gas prices on the inflation outlook which, in turn, resulted in a sharp rise in the 10Y – from 3.61% to the current 4.62%.But, the bigger threat to equity prices appears in our yield curve model, which reflects the potential for significant downside if the bond market continues on its current path.

continued for members…The 10Y is rising more rapidly than the 2Y….

…which means that the 2s10s has reached levels not seen since Jun 2022.As we’ve pointed out frequently, breakouts in the 2s10s tend to cause significant equity corrections or even — when following inversions — crashes. Previous breakouts are marked with white arrows below.

The market closes early today, and futures are currently slightly positive.

Despite promises to “drill baby drill” we haven’t seen oil and gas prices reflect a substantial increase in supply. Given the coziness between Trump and the Saudis, one has to wonder whether it’ll occur at all.Stay tuned…