Oil Prices Merge with US Treasury Yields in 36-Year High Correlation

The correlation between oil prices and US Treasury yields has reached a 36-year high. The 3-month rolling correlation coefficient, provided by the Chicago Board Options Exchange (CBOE) Macro Volatility Summary, rose to 65% last week. This is higher than during the COVID-19 pandemic and the Arab Spring in 2011, but slightly below the 66% seen at the onset of the Gulf War in 1990.

Another measure indicates that the 1-month rolling correlation between WTI near-month contracts and the 10-year yield reached 0.96 in mid-September. This is nearly a perfect alignment, with BMO Capital Markets noting that this 1-month reading is the strongest since June 2019.

The synchronized rise is occurring during a supply shock rather than a demand expansion phase. The Strait of Hormuz typically carries about 20% of global oil exports, and conflicts have driven up crude oil prices, with WTI near-month contracts briefly exceeding $100 per barrel.