Sentiment is looking a tad wobbly as investors assess the cross currents of AI and energy. Semiconductor stocks have corrected sharply lower over the past few weeks and this may be starting to have some spillover unto the broader equity space. Notably, the S&P 500 has been grinding sideways since early June and started trading heavy towards the close of last week. At the same time, oil prices have been creeping higher, with WTI now trading above USD 80 / bbl. As the conflict between US and Iran resumes, investors are probably also noting that the war between Russia and Ukraine is still ongoing. A war premium in oil seems to be being built up again. 
Against this backdrop, US Treasuries are conflicted. At current yield levels, US Treasuries quality as safe assets and should trade well during times of risk aversion. This was the case in Asia time last Friday. However, if oil prices keep climbing, this restrains performance in USTs. By the close of last week, the UST curve bear flattened as investors once again entertain thoughts that the Fed may have to hike on the back of energy-related pressures. We think this conflict in USTs will take some time to resolve. Financial conditions have been exceeding loose for some time and there is definitely scope for some correction in risky assets. But if oil prices push higher, yield downside will be limited. Curve flattening may well be the play if risk off and high oil prices persist. 
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