Oil prices and US Treasury yields in rare 'divine sync', global financial markets under pressure

BlockBeats news, September 15 — The simultaneous rise in crude oil prices and U.S. Treasury yields is intensifying market concerns about inflation and high interest rates. According to BMO Capital Markets data, the one-month rolling correlation between front-month WTI crude oil and the 10-year U.S. Treasury yield has risen to 0.96, the highest since June 2019.

On Monday, the 10-year U.S. Treasury yield broke through the 5% mark for the first time since October 2023. Ed Yardeni, president of Yardeni Research, said that if oil prices continue to rise, Treasury yields could climb further and increase the possibility of the federal funds rate entering a tightening cycle. He expects there may be 2 to 3 more rate hikes ahead.

Billy Leung, investment strategist at Global X ETFs, said the current oil price rally is being transmitted to financial markets through inflation expectations and discount rates, weakening the traditional diversification effect between commodities and Treasuries. Komal Sri-Kumar, president of Sri-Kumar Global Strategies, warned that the risk of a bond bear market is rising and advised investors to focus on short-duration fixed income and defensive stocks, while allocating to real assets such as real estate, copper, and gold.

Meanwhile, high oil prices and high financing costs are also squeezing the real economy. Andy Lipow, president of Lipow Oil Associates, said rising energy prices will push up consumer spending and transportation costs, while higher Treasury yields will further raise mortgage, auto loan, and corporate financing costs, and could weigh on capital-intensive projects, including AI and related energy infrastructure construction.

However, market participants noted that the current extremely high correlation of 0.96 may also reflect short-term extreme market conditions triggered by geopolitical conflicts. If geopolitical tensions ease, or if slowing economic growth once again becomes the market's main theme, the abnormally high correlation between oil prices and Treasury yields could quickly fall back.