US Treasury prices staged a recovery on Wednesday as WTI crude oil tumbled roughly 3% to $66.48 per barrel, its lowest level in four months. The twin moves tell a simple story: cheaper oil means less inflation pressure, which means bonds look a lot more attractive.
What’s driving the oil selloff
The catalyst here is geopolitics, specifically the easing of tensions between the US and Iran. Earlier this year, escalating confrontations in the Middle East had sent oil prices spiking, which in turn fueled inflation fears and hammered bond prices. That dynamic appears to be reversing.
Diplomatic talks between Washington and Tehran have progressed enough to take some of the fear premium out of crude. When traders stop pricing in the possibility of supply disruptions in one of the world’s most critical oil-producing regions, prices come down.
The Treasury yield connection
