Edward Conard

Top Ten New York Times Bestselling Author

  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “Unintended Consequences should be read by anyone who takes for granted the superiority of progressive taxation and has not thought carefully about the trade-offs involved.” - The New Republic
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a very valuable contribution.” - Larry Summers, former Secretary of the Treasury and director of the National Economic Council, president emeritus, Harvard University
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, March 24, 2026

AI Summary. The authors estimate that students assigned teachers who inflate average grades have lower future test scores, high school graduation, college enrollment, and earnings, with a one standard deviation increase in a teacher's average grade inflation reducing the present value of students' lifetime earnings by $213,872. Inflating passing grades instead raises graduation with limited long-run effects.

Jeffrey Denning, Rachel Nesbit, Nolan Pope and Merrill Warnick National Bureau of Economic Research
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Data from Los Angeles and Maryland linking high school, postsecondary, and earnings records suggest that one class-year with a teacher with 1 SD higher mean grade inflation reduces the PDV of their students’ lifetime earnings by ~$213,872.

How does teacher grade inflation affect students' long-term outcomes and earnings?

Core argument: The authors estimate that assignment to a teacher with one standard deviation higher average grade inflation reduces the present discounted value of students' lifetime earnings by $213,872 per year.

We develop two teacher-level measures of grade inflation: one measuring average grade inflation (the year-specific teacher fixed effect showing the teacher’s average contribution to grades after controlling for the student's contemporaneous performance in the focal subject as measured by the corresponding subject test score as well as prior test scores, prior grades, and other background characteristics), and another measuring a teacher's propensity to give a passing grade [which affects primarily students near the bottom of the distribution]. A [separate] cognitive value-added measure [included in the regressions] is a teacher fixed effect capturing how much a teacher raises students' standardized test scores relative to what would be predicted from the students' prior test scores and background characteristics. Grade-inflating teachers have moderately lower cognitive value-added and slightly higher noncognitive value-added. The two [grade-inflation] measures differentially impact students' long-term outcomes. Being assigned a higher average grade inflating teacher reduces a student's future test scores, the likelihood of graduating from high school, college enrollment, and ultimately earnings. A teacher with one standard deviation higher average grade inflation reduces the present discounted value [PDV] of lifetime earnings of their students by $213,872 per year.  In contrast, passing grade inflation reduces the likelihood of being held back and increases high school graduation, with limited long-run effects. [Figure 7 in the gallery].

Takeaways by Macro Roundup® AI

  1. The authors estimate that assignment to a teacher with one standard deviation higher average grade inflation reduces the present discounted value of students' lifetime earnings by $213,872 per year.
  2. Higher average grade inflation by teachers lowers students' future test scores, high school graduation likelihood, college enrollment, and earnings, while passing-grade inflation instead reduces grade retention and raises high school graduation with limited long-run effects.
  3. Grade-inflating teachers have moderately lower cognitive value-added, measured as a teacher's contribution to standardized test scores beyond what students' prior scores and background characteristics predict, and slightly higher noncognitive value-added.

Related Articles:

  • Steeper At The Top: Cognitive Ability and Earnings in Finland and Norway — Administrative data on over 350,000 men each in Finland and Norway show a convex relationship between earnings rank and cognitive ability measured by military conscription tests: top-percentile earners score about 1 standard deviation above median earners, who score about 0.5 above bottom-percentile earners. The lowest scores are almost absent among top earners.
  • Never Enough: Dynamic Status Incentives in Organizations — Data on over 5,000 German fighter pilots show performance rose markedly as pilots approached the eligibility threshold for each medal in a tiered awards ladder and slumped immediately after receiving it, with the effect repeating at each successive rung. The authors estimate the ladder added 3,000–5,000 aerial victories, 5–10% of the total.
  • Killer Incentives: Status Competition and Pilot Performance during World War II — Analysis of over 5,000 German World War II fighter pilots finds that public peer recognition was associated with higher victory scores among skilled pilots without higher mortality, while average pilots gained little in victories but died at higher rates. The authors conclude status-based awards can have uneven effects in high-risk settings.

AI Summary. About $14tn of investment-grade fixed income supply is coming to market, combining roughly $10tn of US government debt to be refinanced over the next 12 months, a budget deficit near $2tn, and about $2tn of gross corporate bond issuance boosted by data-center builders. The author argues this growing supply is putting upward pressure on interest rates and credit spreads.

Torsten Sløk Apollo
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The US will refinance ~$10T of debt this year in addition to running a budget deficit of ~$2T. Total IG US corporate bond issuance will be ~$2T, in part due to the AI buildout. Sløk notes debt sales at this scale will put upward pressure on rates.

Is rising investment-grade bond supply pushing up rates and spreads?

Core argument: Total investment grade supply reaching the market this year is around $14 trillion, combining $10 trillion of US government debt to be refinanced over the coming 12 months, a roughly $2 trillion budget deficit, and about $2 trillion of gross corporate bond issuance.

Ten trillion dollars in existing US government debt will need to be refinanced over the coming 12 months. The budget deficit this year is about $2 trillion. Total gross corporate bond issuance in 2026 is likely to be around $2 trillion because of increased supply from hyperscalers. Adding it all up, the total amount of investment grade supply coming to the market this year is around $14 trillion. The bottom line is that the growing supply of investment grade fixed income product is putting upward pressure on rates and credit spreads.

Takeaways by Macro Roundup® AI

  1. Total investment grade supply reaching the market this year is around $14 trillion, combining $10 trillion of US government debt to be refinanced over the coming 12 months, a roughly $2 trillion budget deficit, and about $2 trillion of gross corporate bond issuance.
  2. Gross corporate bond issuance in 2026 is likely to total around $2 trillion, reflecting increased supply from hyperscalers.
  3. The growing supply of investment grade fixed income product is putting upward pressure on rates and credit spreads.

Related Articles:

  • Global Debt Report 2026 — Gross central government borrowing across OECD countries rose 7% to a record $17tn, about 23% of GDP, and is projected to reach roughly $18tn, or 24% of GDP. The United States and Japan account for close to 80% of the area's refinancing requirements, with the US share rising from 57% to 70%.
  • The Budget and Economic Outlook: 2026 to 2036 — The Congressional Budget Office projects the federal deficit will grow from $1.9tn (5.8% of GDP) to $3.1tn (6.7%) over a decade, above the 3.8% averaged over the past 50 years, with rising net interest costs driving much of the increase. Federal debt held by the public is projected to rise from 101% to 120% of GDP.
  • Are Government Bonds Safe in Times of War and Pandemic? — Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.

AI Summary. An analysis of the University of Michigan's Panel Study of Income Dynamics, which has tracked 85,000 individuals from 5,000 families since 1968, finds that first-time US home buyers are on average 35 years old — three years older than a decade earlier and eight years older than in the 1970s.

Aziz Sunderji Home Economics
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The median age of American first-time home buyers was 35 years old in 2025, up from 32 in 2015.

Are Americans buying their first homes at older ages?

Core argument: First-time U.S. home buyers are on average 35 years old, three years older than a decade ago and eight years older than in the 1970s, according to an analysis of the University of Michigan's Panel Study of Income Dynamics.

At what age do people buy their first home? My analysis of data from the University of Michigan’s Panel Study of Income Dynamics (PSID) shows that, on average, they’re 35—three years older than a decade ago, and eight years older than in the 1970s. The PSID is a remarkable dataset. Like wildlife researchers tagging a pod of whales, the researchers at the University of Michigan have tracked 85,000 individuals from 5,000 families they began studying in 1968. This ‘longitudinal’ data allows us to observe the kids in these families as they leave home, form their own households, rent their first apartments, and eventually become first time buyers (FTBs) of homes. And because specific individuals are tracked over time, we can pinpoint the exact moment someone transitions from renting to owning for the first time, and how old they were when it happened. No other U.S. dataset can do this, and none go as far back as the 1960s.

Takeaways by Macro Roundup® AI

  1. First-time U.S. home buyers are on average 35 years old, three years older than a decade ago and eight years older than in the 1970s, according to an analysis of the University of Michigan's Panel Study of Income Dynamics.
  2. The Panel Study of Income Dynamics has tracked 85,000 individuals from 5,000 families first studied in 1968, allowing observation of when specific people leave home, rent, and first buy a home.
  3. No other U.S. dataset can pinpoint the exact moment an individual transitions from renting to owning, and none extends back as far as the 1960s.

Related Articles:

  • What Explains Low Millennial Home Ownership? — At age 30, 31% of Millennials still live with parents or roommates versus 19% of Boomers, and only 61% of Millennial household heads are married versus 77% of Boomers; the analysis attributes most of the 18-percentage-point home ownership gap (25% versus 43%) to these two differences. Among married household heads, the ownership gap narrows to 8 points.
  • Has Intergenerational Progress Stalled? Income Growth Over Five Generations of Americans — Using post-tax, post-transfer income data, the authors find each of the past four US generations was better off than the prior one, with Millennials' real median household income at ages 36–40 18% above the previous generation's, versus 34% for the Silent Generation, 27% for Baby Boomers, and 16% for Generation X.
  • Why Are Young Adults in the English-Speaking World So Unhappy? — The share of young adults regularly experiencing stress and anger has risen sharply in the US, Canada, UK, Ireland, Australia and New Zealand while remaining largely stable elsewhere in the West. Real house prices since 1995 are up 85% in the US and over 200% in the other five countries.

AI Summary. Gold is heading for an extended losing streak as the closure of the Strait of Hormuz and damage to Persian Gulf energy infrastructure send crude and natural gas prices surging, raising the prospect of higher interest rates from the Federal Reserve and other central banks.

Yvonne Yue Li, Yihui Xie, and Jack Ryan Bloomberg
Date Posted:

Gold has fallen ~15% since the start of the Iran War but remains positive for the year, having returned to its January level. The decline is being attributed to higher real rates, as the 10-year TIPS yield climbed above 2%.

Are surging energy prices and rate expectations pushing gold lower?

Core argument: Gold is heading for its longest-ever losing streak as the closure of the Strait of Hormuz and damage to Persian Gulf energy infrastructure accompany surging crude and natural gas prices.

A key implication of the war for financial markets has been the closure of the Strait of Hormuz, along with damage to energy infrastructure in the Persian Gulf. With crude and natural gas prices surging, the prospect of higher interest rates from the Federal Reserve and other central banks continues to weigh on gold. A similar pattern followed Russia’s invasion of Ukraine in early 2022, when an initial spike in the safe-haven commodity was followed by a months-long decline as an energy price shock rippled through markets and added to inflationary pressures.

Takeaways by Macro Roundup® AI

  1. Gold is heading for its longest-ever losing streak as the closure of the Strait of Hormuz and damage to Persian Gulf energy infrastructure accompany surging crude and natural gas prices.
  2. The prospect of higher interest rates from the Federal Reserve and other central banks continues to weigh on gold as crude and natural gas prices surge.
  3. After Russia's invasion of Ukraine in early 2022, an initial spike in gold was followed by a months-long decline as an energy price shock rippled through markets and added to inflationary pressures.

Related Articles:

  • Global Economics Comment: Supply Shocks from the War in Iran Are Mostly Limited to Energy — Analysts forecast 2.6% global growth on an annual average basis, down from 2.9% before the war in Iran, with headline inflation of 2.9% versus 2.3% prior. They argue the supply risk is mostly confined to energy, limiting the chance of a repeat of the severe shipping disruptions and second-round inflation effects seen in 2021-2022.
  • The Fed is Misreading the Inflation Risks — The author argues the Federal Reserve is wrong to attribute excess inflation mostly to goods prices driven by tariffs, since services make up the bulk of economic activity. Prices of services businesses buy as production inputs have been accelerating, as has consumer services inflation excluding imputed prices, housing, and utilities.
  • Why Did Inflation Rise And Fall In 2021-24? Channels And Evidence From Expectations — Across countries, unexpectedly higher government deficits relative to earlier International Monetary Fund forecasts are associated with unexpectedly higher inflation, measured by each factor's contribution to the increase in public debt, a relationship the author finds statistically significant. This evidence is consistent with a fiscal channel for inflation.

AI Summary. China's urban unemployment rate for 16-to-24-year-olds excluding students edged down to 16.1% from 16.3%, a sixth consecutive monthly decline from a peak of 18.9% reached after a record 12.2m university graduates entered the job market. The rate for those aged 25 to 29 rose to 7.2% from 6.8%.

Xinyi Wu South China Morning Post
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China’s youth unemployment (16–24) continued to decline from its recent peak in August of 18.9%, falling to 16.1% in February.

Is China's youth unemployment rate continuing to decline?

Core argument: China's urban youth unemployment rate for ages 16–24, excluding students, edged down to 16.1% in February from 16.3% in January, a sixth consecutive monthly decline, according to the National Bureau of Statistics.

China’s urban youth unemployment rate fell in February for the sixth consecutive month, though the marginal improvement provides little reprieve for job seekers in a challenging post-holiday labour market. The jobless rate for the 16-to-24 age group, excluding students, edged down to 16.1% in February from 16.3% in January, according to data released by the National Bureau of Statistics on Thursday. The figure has been gradually declining since August, when a record 12.2 million university graduates entered the job market and pushed the jobless rate to 18.9% – the highest level since students were excluded from the data in December 2023. The unemployment rate for those aged 25 to 29, also excluding students, stood at 7.2% in February, up from 6.8% in January.

Takeaways by Macro Roundup® AI

  1. China's urban youth unemployment rate for ages 16–24, excluding students, edged down to 16.1% in February from 16.3% in January, a sixth consecutive monthly decline, according to the National Bureau of Statistics.
  2. The 16-to-24 jobless rate has declined gradually since August, when a record 12.2 million university graduates entered the job market and pushed it to 18.9%, the highest since students were excluded from the data in December 2023.
  3. China's unemployment rate for those aged 25 to 29, excluding students, stood at 7.2% in February, up from 6.8% in January.

Related Articles:

  • Xi’s Export Juggernaut Is Leaving China’s Factory Workers Behind — Chinese exports rose nearly 22% year-over-year in the first two months of 2026, exceeding expectations and producing a record trade surplus for the period. Growth is concentrated in less labor-intensive goods such as batteries, cars and chips, while an alternative wage measure sits near its lowest level outside the pandemic.
  • China’s Future Rests On 200m Precarious Workers — China classifies roughly 200m people as "flexible workers" without formal contracts, a group that makes up a quarter of the national workforce and two-fifths of the urban workforce. Unlike the West's service-focused gig economy, about 40m of these workers are paid by the day or week in factories, and semi-official estimates put 84m at online delivery and ride-hailing firms.
  • Macro Outlook 2026: Sturdy Growth, Stagnant Jobs, Stable Prices — China's growth is forecast at 4.8%, above the 4.5% consensus, with robust manufacturing offset by a housing drag on output estimated at about 1.5 percentage points as property sales run 60% below peak. Strong manufacturing and weak domestic demand are projected to lift China's current account surplus toward 1% of global output.

Wednesday, March 25, 2026

AI Summary. A study of a large public urban university system finds that high school grade point average is a far stronger predictor of student academic success than SAT scores, contrasting with analyses of highly selective colleges that found the SAT superior. Under-represented minority students were less likely to graduate within six years at every grade point average level.

Theodore Joyce, Mina Afrouzi Khosroshahi, Sarah Truelsch, Kerstin Gentsch, et al. National Bureau of Economic Research
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SAT scores are known to be better predictors of college and post-college success in Ivy+ universities. By contrast, this study of a public urban university system with 11 colleges shows that for the 2010–2019 cohort, high school GPA strongly dominates SAT scores.

Do high school grades predict college success better than test scores?

Core argument: In a study of 2010–2019 cohorts at a large public urban university system, high school GPA predicts student academic success far better than the SAT, contrary to analyses of Ivy-plus colleges that found the SAT superior.

Many of the country’s most selective colleges have returned to requiring the SAT, based on evidence that the test not only predicts student success, but facilitates the identification of qualified applicants from disadvantaged backgrounds. The results from our study of a large public urban university system find the opposite: high school grades are a vastly superior predictor of student academic success than is the SAT. We undertake an exercise with binned scatter plots of six year graduation rates against HSGPA [High School Grade Point Average] stratified by URM [under-represented minority] and whether the student received the maximum Pell grant (Figures 1a and 1b). [Note that SAT is included in the regression so the monotonic linear effect of GDP remains after controlling for SAT score]. We find that URM are less likely to graduate in six years at every level of HSGPA than are non-URM. In contrast, we find no similar difference when we stratify the plot by whether the student received the max Pell grant or not, a strong proxy for a low-income household (Figure 1b). The clear takeaway from the analysis of the 2010-2019 cohorts is the dominance of HSGPA in predicting student academic success. The results are in direct contrast to recent high-profile analyses of students from Ivy-plus colleges that demonstrated the superiority of SAT over HSGPA in predicting not only first-year academic outcomes, but post-college success as well.

Takeaways by Macro Roundup® AI

  1. In a study of 2010–2019 cohorts at a large public urban university system, high school GPA predicts student academic success far better than the SAT, contrary to analyses of Ivy-plus colleges that found the SAT superior.
  2. Binned scatter plots of six-year graduation rates against high school GPA, controlling for SAT score, show under-represented minority students are less likely to graduate in six years at every level of high school GPA than non-URM students.
  3. Stratifying six-year graduation rates by receipt of the maximum Pell grant, a proxy for a low-income household, shows no similar gap to the one found between under-represented minority and non-URM students.

Related Articles:

  • Diversifying Society’s Leaders? The Determinants and Causal Effects of Admission to Highly Selective Private Colleges — Children from top-1% families are more than 2x as likely as middle-class students with comparable SAT/ACT scores to attend an Ivy-Plus college, with two-thirds of the gap attributable to higher admissions rates. The authors attribute this advantage to legacy preferences, weight on non-academic credentials, and athlete recruitment.
  • Military Officer Quality in the All-Volunteer Force — The authors find a steady decline in U.S. Marine Corps officers' General Classification Test scores, which is statistically associated with the expansion of college attendance and explains 96% of the measured change. They also find a positive association between African American officers and mean test scores, arguing affirmative action has not lowered officer quality.
  • Do Adults Have the Skills They Need to Thrive in a Changing World? — An international assessment of adult skills describes numeracy proficiency levels ranging from counting objects and adding small whole numbers at the lowest level, to extracting information from tables and graphs and performing basic arithmetic with money and percentages at Level 1, up to analysing complex mathematical information and critically evaluating whether data support a claim at Level 5.

AI Summary. An analysis of Federal Reserve data estimates about 430,000 U.S. households are worth $30m or more, including roughly 74,000 worth at least $100m, with growth in the number of very rich households outpacing overall population growth over recent decades. Nearly 72% of the top 0.1%'s wealth consists of corporate equities, mutual fund shares, and private businesses.

Rachel Louise Ensign Wall Street Journal
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At the end of 2022, ~430,000 American households had a net worth of at least $30mm, of which ~74,000 were worth $100mm or more. As of Q3 2025, ~72% of the top .1 percent’s wealth consisted of equities, mutual fund shares and private businesses.

How many U.S. households are worth $30 million or more?

Core argument: About 430,000 U.S. households are worth $30 million or more, including roughly 74,000 worth $100 million or more, according to Princeton economist Owen Zidar's analysis of Federal Reserve data.

There are about 430,000 U.S. households worth $30 million or more, according to an analysis of Federal Reserve data by Owen Zidar, a Princeton economics professor. Within that, there are about 74,000 worth $100 million or more. Over the past few decades, the growth in the number of very rich households has surpassed general population growth. Wealth measures a household’s assets, like stocks, bank accounts and home equity, minus liabilities like mortgages, car loans and credit-card debt. For the top 0.1%, nearly 72% of their wealth is made up of corporate equities, mutual fund shares and private businesses, according to the Fed. The S&P 500 has more than tripled in the past decade. And many private businesses have seen valuations rise, too.

Takeaways by Macro Roundup® AI

  1. About 430,000 U.S. households are worth $30 million or more, including roughly 74,000 worth $100 million or more, according to Princeton economist Owen Zidar's analysis of Federal Reserve data.
  2. Nearly 72% of the wealth of the top 0.1% consists of corporate equities, mutual fund shares and private businesses, according to the Federal Reserve, and the S&P 500 has more than tripled in the past decade.
  3. The number of very rich U.S. households has grown faster than the general population over the past few decades, with wealth measured as assets such as stocks, bank accounts and home equity minus liabilities including mortgages, car loans and credit-card debt.

Related Articles:

  • Capitalists in the Twenty-First Century — Most income at the top of the US distribution is non-wage income, primarily profits from closely-held, mid-market firms in skill-intensive industries owned by working-age individuals. The authors find private business profit falls by three-quarters after an owner retires or dies prematurely, indicating most top earners are "working rich" deriving income from human capital.
  • Meet the ‘Stealthy Wealthy’ Who Make Their Money the Boring Way — Owning a medium-size regional business — auto dealerships, beverage distributors, grocery stores, dental practices, law firms — is the largest source of income for the top 1% of US earners. Analysis of anonymized tax data finds such business ownership generated 34.9% of top 1% income in 2022, up from 30.3% in 2014, and 43.1% for the top 0.1%.
  • Ed Conard Debates Furman On “The Expected Value of Risk Taking” — A debate on U.S. fiscal policy argues that spending increases, rather than the tax increases needed to fund them, slow growth, and that higher taxes would reduce the expected value of America's innovative risk-taking. The argument holds that cutting debt below 100% of GDP is critical.

AI Summary. Oil flows through the Strait of Hormuz are projected to stay at just 5% of normal levels for six weeks before a gradual one-month recovery. The authors expect the resulting supply shock to prompt policymakers to rebuild strategic reserves and markets to price a security premium into long-dated oil.

Daan Struyven, Yulia Zhestkova Grigsby and Alexandra Paulus Goldman Sachs
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Goldman’s base case forecast now has Brent averaging $110 across March/April and $115 in April, with Hormuz flows at 5% of normal levels through April 10th.

Will a prolonged shipping disruption keep oil prices elevated longer?

Core argument: The analysts now expect Strait of Hormuz flows to stay at 5% of normal levels for 6 weeks, through April 11, before a gradual 1-month recovery, versus their prior assumption of 10% for 3 weeks.

We now expect Hormuz flows to remain at only 5% of normal levels for a longer period totaling 6 weeks (vs. 10% for 3 weeks prior) before a gradual 1-month recovery. We previously laid out three theoretical paths for a pick-up in Hormuz flows: 1) Iran allowing safe passage of tankers with certain origins/destinations (e.g. China, India, Japan), 2) conflict de-escalation, and 3) military protection for tankers. While the uncertainty about the duration of disruptions remains high, the 6-weeks assumption for peak Hormuz disruptions sits between a) the 4 to 6 weeks range for the military operation cited by US policymakers and b) the median length of the conflict currently reflected in prediction markets. Because our 6-weeks (i.e. 5% of normal flows till April 11) assumption corresponds to SoH flows edging up above 5% and because Iran already allows some selective passage, SoH flows are likely to exceed 5% before the conflict ends. The largest oil supply shock ever will likely lead policymakers and markets to recognize the structural risks from the high concentration of production and spare capacity in the Middle East and from the vulnerability of energy infrastructure. Specifically, we now expect policymakers to rebuild higher strategic reserve levels after reopening of the Strait and markets to build a security premium in long-dated prices.

Takeaways by Macro Roundup® AI

  1. The analysts now expect Strait of Hormuz flows to stay at 5% of normal levels for 6 weeks, through April 11, before a gradual 1-month recovery, versus their prior assumption of 10% for 3 weeks.
  2. The 6-week peak-disruption assumption sits between the 4–6 week range for the military operation cited by US policymakers and the median conflict length reflected in prediction markets.
  3. The analysts expect the oil supply shock to prompt policymakers to rebuild higher strategic reserve levels after the Strait reopens and markets to build a security premium into long-dated prices.

Related Articles:

  • Pandora’s Bog: The Global Energy Shock of 2026 — Gulf liquefied natural gas is only 3% of global gas consumption, but because commodity prices are set at the margin, its loss pushes gas import prices higher in Europe and Asia as China, Korea, India and Pakistan seek replacement supplies on the spot market. Undamaged Qatari facilities would need 3-4 months to reach full loading.
  • You Can’t Print Molecules — Rebuilding after a disruption to a key shipping strait would require governments to finance defense, strategic reserves, domestic energy production, and infrastructure at the same time that inflation expectations are raising funding costs. The author argues capital will rotate out of asset-light sectors that thrived on open sea lanes and cheap energy into asset-heavy physical ones.
  • Fighting Words: The Energy Transition in 2026 — Estimates based on primary energy overstate how much electricity is needed to replace oil in passenger cars, since electric motors convert 80%-90% of electricity into motion versus about 18% for gasoline cars. Measuring useful final energy net of waste heat avoids this "primary energy fallacy": the US consumed 45 exajoules of useful final energy versus 95 exajoules of primary energy.

AI Summary. Increases in long-term US government bond yields have been driven almost entirely by real interest rates, as measured by inflation-protected yields, rather than by long-term inflation expectations. One explanation is a rising term premium, with investors demanding extra yield on long bonds if they expect greater inflation volatility or weaker diversification against stocks.

Robert Armstong Financial Times
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Since the start of the War, real yields on 30-year TIPS have risen; breakeven inflation has not. This real rate premium at the long end is likely to be compensation for long-term inflation risk and/or increased correlation of bond and equity returns.

Are real rates, not inflation expectations, driving long-term yields?

Core argument: The rise in long-term US yields is almost entirely attributable to real interest rates, as proxied by inflation-protected yields, rather than to long-term inflation expectations.

Short-term sovereign bond yields have risen a lot since the start of the war as traders anticipate fewer central bank interest rate cuts or even rate increases. That financial logic is pretty clear. The long end of the yield curve has risen meaningfully too, however, and that logic is trickier. What is driving up the long end is not long-term inflation expectations; it’s almost entirely real interest rates, as proxied by inflation-protected yields. Here are 30-year US real rates and break-even inflation. Why should the war in Iran and the attendant energy crisis have this effect (if the war is in fact what is at work here)? One natural explanation is that the term premium — the extra yield investors earn for owning long-duration bonds — is rising over and above the expected path of short-term interest rates. There are several ways of thinking about this. It could be that investors are demanding more yield for owning long bonds because they think inflation volatility will be higher in the future. The higher real rates are a margin of safety. Or it could be that in a world with more inflationary incidents, bonds become a worse diversifier of equities; that is, they are more likely to fall at the same time stocks do. So investors require a higher return to own them.

Takeaways by Macro Roundup® AI

  1. The rise in long-term US yields is almost entirely attributable to real interest rates, as proxied by inflation-protected yields, rather than to long-term inflation expectations.
  2. Short-term sovereign bond yields have risen substantially since the war began as traders anticipate fewer central bank rate cuts or even rate increases.
  3. One explanation offered for the higher long end is a rising term premium, with investors demanding more yield either because they expect greater future inflation volatility or because bonds become a worse diversifier of equities.

Related Articles:

  • War Cost Sinks Long-Term Government Bonds on Deficit Worries — Investor concern that the Iran war will raise government spending and widen budget deficits has triggered a selloff in long-term government bonds, pushing the 30-year US Treasury yield near 4.90% and lifting yields from the UK and Germany to Australia and Japan. A global borrowing wave could further pressure the $31tn US Treasury market.
  • Are Government Bonds Safe in Times of War and Pandemic? — Government bonds severely underperform in wartime, in absolute terms and relative to equities, housing, and economic growth, unlike in financial crises when bonds tend to outperform stocks. The U.S. and U.K. reduced war-driven debt-to-GDP ratios without explicit default, using surprise inflation and financial repression that shifted fiscal burdens onto bondholders.
  • $14 Trillion in IG Supply Coming to the Market — About $14tn of investment-grade fixed income supply is coming to market, combining roughly $10tn of US government debt to be refinanced over the next 12 months, a budget deficit near $2tn, and about $2tn of gross corporate bond issuance boosted by data-center builders. The author argues this growing supply is putting upward pressure on interest rates and credit spreads.

AI Summary. Volkswagen is in talks with Israel's Rafael Advanced Defence Systems to convert its Osnabrück car plant to make Iron Dome air-defence components, including missile-carrying trucks, launchers and generators, but not the missiles themselves. Rafael plans a separate German site for missiles and hopes to sell Iron Dome to European governments.

Laura Pitel, Anne-Sylvaine Chassany and Sebastien Ash Financial Times
Date Posted:

Volkswagen may convert some production lines from cars to heavy-duty trucks for Israel’s Rafael, the primary contractor behind the Iron Dome system. Rafael is planning on setting up a separate production facility for missile production in Germany.

Are carmakers converting idle auto plants into air-defence production sites?

Core argument: Volkswagen is in talks with Israel's Rafael Advanced Defence Systems to convert its Osnabrück plant from car production to making Iron Dome components, including heavy-duty missile-carrying trucks, launchers and electricity generators.

Volkswagen is in talks with Israel’s Rafael Advanced Defence Systems over a deal that would switch production at one of the German group’s factories from cars to missile defence. The two companies plan to convert the embattled Osnabrück plant to make components for the Israeli state-owned group’s Iron Dome air defence system, according to people familiar with the plan. Under the plans, the Osnabrück factory would make various Iron Dome parts, including the heavy-duty trucks that carry the system’s missiles as well as launchers and electricity generators. But it would not produce the projectiles themselves. Rafael plans to set up a separate production facility in Germany for the system’s missiles, which must be handled on a specialist site. The company hopes to sell the Iron Dome system to governments across Europe including Germany, as countries strengthen their air defences as part of a large-scale rearmament in response to Russia’s full-scale invasion of Ukraine. Germany last year took delivery of the first of three batteries of the Israeli Arrow 3 air defence system, made by another Israeli company, Israel Aerospace Industries.

Takeaways by Macro Roundup® AI

  1. Volkswagen is in talks with Israel's Rafael Advanced Defence Systems to convert its Osnabrück plant from car production to making Iron Dome components, including heavy-duty missile-carrying trucks, launchers and electricity generators.
  2. The Osnabrück factory would not produce Iron Dome projectiles, and Rafael plans a separate German facility for the system's missiles, which must be handled on a specialist site.
  3. Rafael hopes to sell the Iron Dome system to European governments including Germany, which has taken delivery of the first of three batteries of the Arrow 3 air defence system made by Israel Aerospace Industries.

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