Oil and Treasury yields haven’t moved this closely in seven years. That’s bad news for markets
Oil and 10-year Treasury yields are moving in near lockstep, with their correlation at its strongest since 2019.
TL;DR
- Oil prices and 10-year Treasury yields show their strongest correlation (0.96) since June 2019.
- Rising oil prices, due to Middle East conflict, are synchronizing with Treasury yields topping 5%.
- This tight relationship means oil shocks more directly impact financial conditions, increasing inflation expectations and potentially delaying Federal Reserve easing.
- Higher yields reduce equity appeal and increase financing costs for businesses, particularly impacting growth and technology stocks.
- Consumers face a double hit from higher energy prices and increased borrowing costs filtered through rising Treasury yields.
- The correlation may unwind if geopolitical tensions ease or growth fears dominate.