### POV, WHEN SABER RATTLING GOES WRONG.....>

US TSYS: ### POV, WHEN SABER RATTLING GOES WRONG

Debating effect on markets IF US decides to significantly ramp up hostilities

with Iran. Safe havens should surge, Gold has room to run even at current 5Y

highs, Crude as well. Meanwhile, equities indexes get hammered. BUT -- at

current yield levels (10YY sub2%) how much of a risk-off/safe haven bid would

Treasuries draw? One market strategist posited the following:

* Equities do not all get hammered (defense, XLE -- energy ETF); 10YY Could slip

to 1.75% (had slipped to 1.9719% Thursday, Nov 2016 levels) on hostilities as

market presumes Fed is prepared to allow real rates fall from 0.40% to 0.20% in

10s (can't consider where 5s go until after happy hour).

* The "wild card: where inflation expectations go?  Up...because global trade

would crater. Or Down...because the real economy would reverse course into a

three quarter recession."

* "One reason we're here now is chain-linked binary outcomes that were not on

the radar two months ago -- early May opinions that US/China trade would be back

on track in short order."