Plumbing Notes: The Peak-TACO Era
the rates and $ funding playbook for peak escalation
The next phase of the Not War1 has now commenced. Following a stream of conflicting news, information warfare has grown futile. Markets no longer respect artificial de-escalations. Upon reaching headline fatigue, words have given way to actions. POTUS may have unleashed the largest quasi-TACO yet, but compared to his biggest threats, it was still a relative de-escalation. Trump’s two-week Quasi-Ceasefire™ has subsequently halted the slow burn on risk assets. The mechanism delivering effortless equity market returns has become only partially inhibited. Conks’ excess hikes have also evaporated, not only in the U.S. but globally. As anticipated, risk assets are sniffing out peak escalation, disconnecting from rates markets pricing the aftereffects of Operation Epic Fury. Opening the Strait “that shall not be named”2 will only limit, not reverse, global turmoil and inflationary pressures3. Global STIRs — minus the ultra-short-end — thus resemble what markets believe to be maximum escalation. Welcome to the Peak-TACO era.
In this brief period, POTUS — as with all previous U.S. leaders — has failed to achieve stated goals in the Middle East. A swift retreat is (again) no longer a prospect, with optics being the least of U.S. worries. Further tensions in the Persian Gulf have produced greater uncertainty. Iran’s forces may have dwindled4, yet — as mentioned in War & Plumbing — its influence persists through tit-for-tat engagements at major geopolitical chokepoints. Despite the Strait “opening” today or next month, its “closure” — along with damage to key facilities — has already added a hefty premium to global commodity prices. Shortly, by the end of this year, a partially obstructed Strait means prices should settle at levels higher than when the conflict began.
Accordingly, the Z6 complex (i.e. how December 2026 rates futures in the EU, U.K., and U.S. are pricing hikes or cuts by year-end5) echoes de-escalation with a realistic timeline. What an eventual resolution may look like remains anyone’s guess. Peak turmoil, in Conks’ view, has arrived. Another meaningful escalation, such as U.S. boots on the ground or a Kharg Island offensive, still looms large. Yet, POTUS appears reluctant to unleash what markets would regard as heightened measures.
As pretend negotiations have evolved into (partially) genuine exchanges, markets have entered “peak-TACO”. Market winners and losers closely mirror those of the previous phase when information warfare was effective, but with some key disparities.