Introducing the 'NACHO' trade: How Wall Street is betting on higher oil prices and persistent inflation

Wall Street traders have adopted the 'NACHO' trade—a reference to the belief that the Strait of Hormuz will remain closed for the foreseeable future—driving up Treasury yields and reshaping market expectations. The acronym, short for 'Not a chance Hormuz opens,' mirrors the earlier 'TACO' trade but focuses on oil prices staying near $100 a barrel, signaling persistent inflation and delaying Federal Reserve rate cuts beyond 2026. The Treasury yield curve has compressed significantly since late February, with the spread between 2-year and 30-year bonds narrowing by over 20 basis points, according to Dow Jones Market Data. This mirrors 2022 dynamics when aggressive Fed rate hikes led to declines in both stocks and bonds. Meanwhile, crude oil prices remain steady near $100 a barrel, as traders assume the Strait of Hormuz will stay closed, preventing a drop to pre-Iran war levels. Market indicators show rising long-term inflation expectations, with Treasury inflation-protected securities (TIPS) spreads widening. While equities have surged to new highs amid strong corporate earnings, bond and commodity markets reflect the NACHO trade’s influence. Analysts at State Street Investment Management note that high energy prices haven’t hindered stock rebounds, as investors anticipate continued earnings growth despite oil shocks. The NACHO trade contrasts with the earlier 'TACO' trade, which also proved influential but centered on tariffs. Nobel laureate Paul Krugman recently endorsed NACHO, arguing that Hormuz won’t reopen until economic damage from its closure intensifies. Strategists like Mark Hackett of Nationwide observe that equities are pricing in either a deal or indifference to Hormuz’s status, while bond markets remain skeptical of near-term resolution.