TMR

THE UK will effectively loosen some Russian sanctions by allow imports of diesel and jet fuel refined from Moscow’s crude in countries like India and Turkey. 

The general license published late Tuesday takes effect Wednesday and didn’t set a time limit. The measure, which only applies to those two fuels, comes as swaths of global oil production remain disrupted by the Iran war, with diesel and jet fuel particularly hard hit. 

Prices have soared since the US and Israel began bombing Iran at the end of February, disrupting refinery output in a region that Europe is reliant on for some supplies. The ICE gasoil futures benchmark, which is Europe’s main diesel marker, is currently trading at about $160 a barrel. 

The license eases the impact of sanctions that came into effect earlier this year in an effort to curb Russia’s ability to reap cash from its oil and gas industry. Since invading Ukraine in 2022, Moscow has found new markets for its crude, particularly in India, which was previously a relatively small buyer. 

The UK has not imported any diesel or jet fuel from India since January, according to data from Vortexa.  –BLOOMBERG

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YIELDS on the US Treasury’s longest-dated bond rose to the highest level in almost two decades as investor concerns mount that accelerating inflation will force central bankers to raise interest rates.

The 30-year yield rose as much as seven basis points to 5.20% on Tuesday, a level last seen on the eve of the 2007 global financial crisis. Bond markets across Europe and Japan also fell, while the selloff spilled over into US equity markets.

Yields on government bonds have surged globally in recent weeks as a jump in energy prices caused by the Iran war adds to inflation fears, pushing traders to bet the Federal Reserve will hike rates as soon as this year. Mounting deficits are also prompting investors to demand greater compensation to own longer-maturity debt.

“The bond market is pricing in a higher-for-longer rate policy, most visible in the long end of the curve where duration sensitivity is the greatest,” said Liz Templeton, a senior product manager at Morningstar. That reflects “ongoing uncertainty around Fed policy, energy-driven cost pressures, and heavier Treasury issuance.”

Persistently higher yields threaten to slow the US economy, which has so far proved resilient, and lift borrowing costs for US home buyers and corporations. That prospect is fueling speculation about a policy response by US officials, who already have shifted debt issuance toward shorter-dated maturities.

Worryingly for bondholders, Tuesday’s selloff was not driven by a surge in oil prices — which crept lower on the day — or any individual catalyst. That speaks to a broader nervousness in the market as investors reappraise the clearing price for debt. US 10-year Treasury yields rose as much as 10 basis points to 4.69%, the highest since early 2025, before the move pared to around 4.66%.

Heavy trading in Treasury futures helped drive the move, particularly in contracts tied to five- and 10-year notes. Investors placed several sizable block trades as yields kept rising, and trading volume in the 10-year futures contract during the morning session in New York was nearly twice the recent average.

The shift in market sentiment will soon confront incoming Federal Reserve Chair Kevin Warsh. Traders anticipate the Fed’s next move will be a rate increase, potentially as soon as the end of this year. When the Iran war began in late February, they anticipated as many as three Fed cuts in 2026.

“The market has swung to a clear hiking bias,” said Benjamin Schroeder, a senior rates strategist at ING. That’s because investors are “worried about energy price pressures morphing into something more than just a short-lived inflationary episode.”

Line in the Sand

The 5% level for 30-year US yields has been considered a “line in the sand” that would spark dip-buying by some investors. The recent moves are challenging that assumption, potentially signaling a new era for the $31 trillion Treasury market, widely considered the premier safe asset and a barometer for borrowing costs around the world.

Barclays Plc and Citigroup Inc. strategists have warned clients that yields may breach 5.5%, levels last seen in 2004. And the head of BlackRock’s research unit is recommending investors reduce their exposure to developed-market government bonds — including Treasuries — in favor of equities.

“With debt rising faster than growth, worsening inflation profiles, and no political will for fiscal reform, there is little reason to reach for the long end,” said Ajay Rajadhyaksha, Barclays Plc’s global chairman of research.

A similar dynamic is playing out globally, with yields on 30-year UK gilts approaching 6% and Germany’s long-term borrowing rate trading at a 2011 high. 

In the US, it’s already feeding through to government financing costs. A mid-May auction of 30-year Treasuries was the first since 2007 to result in an interest rate of at least 5%. Investor demand was unremarkable, even at that level. 

US Treasury Secretary Scott Bessent has committed to bringing down borrowing costs at a time when investor concerns over the debt level persist. The median budget deficit estimate of primary dealers of US Treasury securities released earlier this month showed a $1.95 trillion gap for the year ending in September and further widening to $2 trillion in 2027.

“Yields are not just pricing inflation volatility, but increasingly the return of fiscal risk,” said Laura Cooper, global investment strategist and head of macro credit at Nuveen. “There is limited capacity for bond markets to absorb the spending at current yield levels without demanding additional compensation.”

It also might cause investors in other asset classes to rethink their allocations, insofar as they can earn a higher return by investing in government bonds. The S&P 500 stock index has soared over 7% this year, weathering the selloff in most bond markets. 

On Tuesday, the Russell 2000 Index, comprised of smaller companies that typically carry higher debt loads and are less profitable than their larger counterparts, was down about 1% by the end of the trading session, widening its three-day decline to 4%. The S&P 500 and Nasdaq 100 indexes also fell.

“The ability of US equities to withstand the current bearish move in Treasuries is the true litmus test of the bond selloff,” said Ian Lyngen, head of US interest-rate strategy at BMO Capital Markets in New York. “We suspect that if and when 30-year rates manage to reach 5.25% in the next few weeks, there will be a more durable pullback in equity valuations.” –BLOOMBERG

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BEIJING – Russian President Vladimir Putin arrived in Beijing late on Tuesday for talks with his Chinese counterpart and “long-time good friend” Xi Jinping, intending to show their ties are unshakeable days after a visit by Donald Trump.

The confirmation of Putin’s trip came just hours after Trump wrapped up his visit on Friday, the first to China by a US president in nearly a decade and one aimed at stabilising their turbulent relations .

Putin arrived at Beijing Capital International Airport around 11:15 p.m. (1515 GMT) on Tuesday, where he was greeted by Chinese Foreign Minister Wang Yi and a military band.

It was a near-mirror image of Trump’s arrival days earlier, with both leaders stepping out of their planes onto a red carpet as Chinese youths chanted “welcome, welcome” — this time, waving Russian flags instead of American.

Putin and Xi are set to discuss how to strengthen Russia and China’s strategic partnership and “exchange views on key international and regional issues”, according to a Kremlin statement.

Their ties have deepened since Russia’s invasion of Ukraine in 2022, with Putin visiting Beijing every year since as his country is cut off diplomatically on the world stage.

However, their relationship is far from equal, with Moscow heavily dependent economically on Beijing, the main buyer of sanctioned Russian oil.

Among topics Xi and Putin could discuss is the construction of the major “Power of Siberia 2” natural gas pipeline from Russia to China through Mongolia — a land alternative to crude imported by sea from the Middle East — which Moscow is keen to get underway.

Setting a warm tone for the visit, Xi and Putin exchanged “congratulatory letters” on Sunday to mark 30 years of their countries’ strategic partnership.

Chinese foreign ministry spokesperson Guo Jiakun lauded “the enduring friendship between China and Russia” on Tuesday.

And in a video message to the Chinese people released on Tuesday, Putin said relations have reached “a truly unprecedented level”, and that “trade between Russia and China continues to grow”.

“The close strategic relationship between Russia and China plays a major, stabilising role globally. Without allying against anyone, we seek peace and universal prosperity,” Putin said, without mentioning any third country.

The two leaders are also expected to sign a joint declaration after their talks.

‘Dear, old friends’

Xi welcomed Putin with open arms as an “old friend” when he last visited Beijing in September 2025 — language the Chinese leader did not extend to Trump last week.

Putin, who in turn called Xi his “dear friend”, will be keen to show the world that their relations are unaffected by Trump’s visit.

While Putin’s visit is not expected to receive the same pomp as Trump’s, “the Xi-Putin relationship does not require that kind of performative reassurance”, said Patricia Kim from the Brookings Institution in Washington.

Both sides view ties as “structurally stronger and more stable” than those between China and the United States, she said.

Beijing has regularly called for talks to end the war in Ukraine but has never condemned Russia for sending in troops, presenting itself instead as a neutral party.

Trump and Xi discussed Ukraine last week, but the US president left China without a breakthrough.

“Xi will almost certainly brief Putin on his summit with Trump,” Kim said.

The lack of clear outcomes from the Xi-Trump meeting, though, “likely reassures Moscow that Xi did not strike any understanding with Trump that would materially undercut Russian interests”.

Appetite for oil

Putin will be hoping for China to deepen its commitment to Moscow, after Trump told Fox News during his visit that Beijing had agreed to buy US oil to feed its “insatiable” appetite for energy.

With Russia reliant on sales to China to sustain its war effort, “Putin does not want to lose that support”, Asia Society’s Lyle Morris told AFP.

“Putin will likely be keen to hear from Xi about China’s next step in the Middle East,” Morris said, after “Trump signalled clearly that he hopes Beijing will play a leading role”.

When it comes to the US-Israeli war on Iran, though, China and Russia may have different priorities.

“(China) relies on the freedom of the world’s major waterways to sustain its economic activities, and would prefer that the standoff in the Strait of Hormuz end sooner rather than later,” James Char of Singapore’s Nanyang Technological University told AFP.

On the other hand, Moscow has “been benefitting economically from the fighting in Iran due to the relaxation of sanctions against Russian energy supplies, so may have a different view”, he said.

Russia’s top diplomat Sergei Lavrov said after meeting Xi in April that Russia could “compensate” for China’s energy shortages as the Middle East war hits global supplies.

“Expanded energy ties may feature prominently at the meeting (as) Beijing seeks more Russian energy,” said Joseph Webster from the Atlantic Council.

“From Moscow’s perspective, shipping more oil east may be more attractive in the wake of Ukraine’s relentless campaign targeting Russian energy infrastructure.” –AFP

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