06.10.2026 - Oil Prices & Yields
Markets continue to focusing on two key variables: oil prices and bond yields.
Yet something unusual is happening in the relationship between these variables and equities:
When oil prices and bond yields rise, equities rise as well. When oil prices and bond yields fall, equities also rise.
In fact, the correlation between equities and bonds has fallen to its lowest level this century. Traditional cross-asset relationships appear increasingly disconnected, with equities showing remarkably little sensitivity to movements in bond yields.
Today, oil prices are moving lower again. WTI has fallen below USD 90/barrel, while Brent crude has dropped back below USD 100/barrel, as stronger Middle Eastern exports and the release of G7 emergency stockpiles have eased some immediate supply concerns.
Bond yields initially moved lower this morning, but the relief proved short-lived, with yields subsequently turning higher again and remaining close to recent highs.
Meanwhile, equities continue to climb, led once again by technology stocks, with the Nasdaq reaching another record high.
Markets:
Equities: Moving higher led by Tech with Nasdaq new record high
Bonds: yields trading near recent highs - US 2y yield above 4.82%, US 10y yield above 5.30%, Japan 10y yield 3.11%
Commodities: Oil prices falling, WTI at USD 88/barrel and Brent around USD 98/barrel;
Precious metals prices almost unchanged, gold USD 4’155/oz, silver USD 61/ozCurrencies: US dollar remains strong - Japanese Yen unchanged USDJPY 158
Cryptos: mixed - Bitcoin around USD 86k
Volatility: The VIX index higher, back below 16 (good opportunity for hedging!)
My View: Something does not add up.
The exceptionally low correlation between equities and bonds is striking. With bond yields at these levels, I would normally expect equities, particularly highly valued growth and technology stocks, to show significantly more vulnerability.
Instead, the Nasdaq is reaching new record highs while the US 10-year Treasury yield trades above 5.30%.
At the same time, the decline in oil prices should not be mistaken for a normalization of the global energy market.
Oil prices remain elevated, and underlying supply disruptions have not disappeared. Transportation costs, insurance costs and geopolitical risk premia remain high. Refiners continue to struggle to meet demand for fuels, not only today, but potentially in the months ahead.
The release of emergency reserves can temporarily increase available supply and reduce prices, but it does not solve the underlying problem. Releasing inventories is not the same as creating new production capacity, and those inventories already reaching low levels, will have to be rebuilt.
The combination therefore remains uncomfortable: bond yields above 5%, elevated energy costs, persistent inflation risks and equity valuations near record highs.
Yet equities currently appear almost immune to these risks. The historically low correlation with bonds is another indication of how detached equity markets have become from some of the traditional signals coming from other asset classes.
In my view, this disconnect is becoming increasingly difficult to justify fundamentally. Markets can ignore deteriorating risk signals for longer than expected, but they cannot eliminate them.
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