The bond market is flashing a warning, energy geopolitics expert warns

Don’t look now, but the pain from high energy prices might be about to bite Americans twice. 

With no end in sight to the war in Iran and oil prices stuck above $100 a barrel, bond traders worried about inflation have sold off long-term government debt in the U.S. and developed economies in recent days. That has the effect of raising bond yields, including on the benchmark 10-year Treasury note, which rose nearly 24 basis points in the past week to end Friday near 4.6%. 

The 10-year Treasury yield influences the cost of mortgages, auto loans, credit card rates and other consumer debt. When it goes up, consumers feel the pinch. Its rate is set by the market, not the Federal Reserve.

To unpack what’s happening at the intersection of geopolitics, energy, and global debt, CNBC reached out to Daleep Singh, vice chair and chief global economist at asset manager PGIM. Singh has seen global energy conflicts up close: As deputy national security adviser under President Joe Biden, he designed that administration’s economic effort to cut off Russia’s oil revenue. Earlier in his career, Singh ran the New York Federal Reserve Bank’s markets desk, a sensitive position that looks directly into the guts of the global financial system.

Singh may have been appointed by a Democrat, but he isn’t singing the party line. He began by praising Kevin Warsh, the conservative economist appointed by President Donald Trump and confirmed by the Senate on Wednesday to chair the Fed.

The transcript of Singh’s conversation has been edited for length and clarity. He spoke over Zoom on Friday.

Q: How do you think Kevin Warsh will fare as Fed chair? 

Daleep Singh: I’m optimistic about Kevin Warsh. His intellectual work has been centered on how to sustain the Fed’s most important asset, which is its credibility. That could not be more important at a time when the central bank is under political assault. I think he is going to be thoughtful and deliberate about judging the trade-offs that are necessary to preserve the independence of monetary policy, maybe to the detriment of other responsibilities the Fed once held.

It’s also super important to have a Fed chair who has been battle-tested. Warsh has been, through the global financial crisis. [Warsh was a Fed governor from 2006 to 2011.] He was credited by almost everyone as being the eyes and ears of the Fed into Wall Street, and how that was going in terms of transmitting the response to the real economy.

People who dismiss him as reflexively partisan are missing a lot of what he brings to the table in terms of working across the aisle.

Having said that, look, I do not think the Fed should be cutting rates in this moment. We’re going to find out really soon how much scope he has to do the right thing.

Q: There is a perception Warsh will try to convince the Fed to cut rates and get laughed out of there. Then Trump will explode at him. Are people underestimating his ability to sway Trump?

Singh: The deepest question of all is whether…