Correlation Between Oil Prices and US Bond Yields Hits Highest Level Since 1990

The correlation between oil prices and yields on 10-year U.S. Treasury bonds has reached its highest level since 1990, as developments in the Iran war and energy prices have become a key driver of bond market movements. According to Cboe data, the correlation between West Texas Intermediate (WTI) crude and 10-year U.S. Treasury yields stood at around 65% in September, approaching the record level seen in 1990. This reflects growing investor sensitivity to any movement in oil prices, as rising crude prices bolster inflation expectations and increase bets on tighter monetary policy, pushing bond yields higher. According to estimates by TS Lombard, every $1 increase in the price of a barrel of WTI crude could correspond to an increase of approximately 0.02 percentage points in the yield on 10-year U.S. Treasuries, as developments in the Strait of Hormuz and Iran have become more influential on yields than some traditional economic data.