Slide in oil prices drives rebound in government bonds

Brent crude pulled back to the $101–$105 per barrel range, having briefly spiked to $107.63 on September 10. That retreat was enough to push 10-year US Treasury yields lower by as much as 9 basis points in key trading sessions, settling back toward the 4.93–4.95% range after earlier threatening to push significantly higher. The connection between crude oil and government bonds runs through inflation. Higher oil prices feed directly into energy costs, transportation, and manufacturing, raising the broader price level across an economy. When inflation expectations climb, bond investors demand higher yields to compensate for the erosion of their fixed returns. That pushes bond prices down, since yields and prices move in opposite directions. The 30-year Treasury yield had climbed to multi-year highs near 5.37% during the peak oil period in early September. A 9 basis point move on the 10-year in a single session is, by bond market standards, a meaningful shift. Tensions surrounding the US-Iran conflict drove significant uncertainty over global supply, which traders priced into crude with considerable urgency, with Brent briefly crossing $107 per barrel. When those fears eased even mode...