Cboe reports oil-rates correlation jumps to 35-year high

Oil prices and interest rates are moving in lockstep to a degree that hasn’t been observed in over three decades. Cboe Global Markets flagged the development in its latest Macro Volatility Digest, published September 21, noting that the correlation between oil price volatility and interest rate volatility has reached a 35-year high. The one-month rolling correlation between front-month WTI crude oil and the 10-year Treasury yield hit 0.96 around mid-September. For context, a perfect correlation is 1.0, meaning these two historically distinct asset classes are now essentially moving as a single trade. What’s driving the convergence WTI crude has pushed past $100 per barrel in recent sessions, fueled by escalating geopolitical tensions centered on the Strait of Hormuz. That narrow waterway, through which roughly a fifth of global oil supply flows, has become a pressure point once again. Meanwhile, the Fed delivered a rate hike in September, pushing the policy rate to the 3.75-4% range. Expensive oil transmits directly into inflation expectations, which in turn supports higher Treasury yields. Higher yields validate the Fed’s hawkish stance. Cboe’s own oil volatility index, the OVX, h...