Oil Prices, Government Bond Yields Move in Sync Amid Inflation Shock

The correlation between US oil prices and government bond yields has reached its highest level since June 2019, according to BMO Capital Markets.

This positive relationship, with a one-month rolling correlation of 0.96, indicates that both indicators are moving in sync, putting pressure on financial markets amid a new inflation shock.

The conflict in the Middle East has driven oil prices up, while the yield on 10-year US Treasury bonds briefly exceeded 5% on Monday for the first time since October 2023.

Billy Leung from Global X ETFs warns that expensive oil may raise inflation expectations, delay policy easing by the Federal Reserve, and increase the discount rate for equities and credit instruments.