Oil Prices Trump Fed Policy as Driver of US Treasury Yields

Oil prices have become an increasingly important driver of US Treasury yields due to inflation concerns fueled by the Middle East conflict.

According to GlobalData's TS Lombard chief US economist Steven Blitz, investors should pay closer attention to oil prices rather than Federal Reserve policy.

The 10-year Treasury yield has climbed above 5.1%, its highest level since the Global Financial Crisis, following weeks of bond sell-off driven by rising inflation and heavy government borrowing.

Blitz notes that every $1 move in West Texas Intermediate crude is associated with nearly a 2-basis-point move in the 10-year Treasury yield since 2012. He believes oil prices are now more important than Federal Reserve policy for determining Treasury yields.

The recent sell-off in US government bonds has become closely tied to swings in crude oil prices as the war in Iran fuels fears that inflation could remain elevated.