Oil's correlation with markets turns negative as tech stocks sell off

what happened

According to Seeking Alpha, citing Stephane Deo, senior portfolio manager at Eleva Capital, the link between oil and US real Treasury yields has flipped. The two moved together until mid-September, but the correlation has since turned negative.

The old story held that higher oil fed inflation, which pushed the Federal Reserve to raise rates and lifted real yields. The new story runs the other way: pricier oil now stokes growth fears, which lowers real yields. The shift coincides with a sharp global tech selloff after earnings from heavyweights such as Meta Platforms, which are raising capital spending with uncertain near-term returns.

As equity investors cut risk, money is moving into US Treasuries, producing the largest flight to safety in the sovereign debt market in years. The 10-year yield dropped nearly 0.20 percentage points in a single day on Thursday, falling below the psychologically important 5% level. On Friday it stood at 5.00%, with the 30-year at 5.32%, the 5-year at 4.82% and the 2-year at 4.70%.

why it matters

For markets, oil and bonds no longer move in lockstep. Higher crude can now be read as a sign of weakening growth rather than inflation, which changes how portfolios may be hedged.

market impact

US Treasuries and equities: flight to bonds pushes yields lower, oil loses its role as an inflation driver

tags

instruments