<h2>Summary</h2>
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Oil volatility reignites inflation concerns, with Treasury volatility reaching its highest level since the Liberation Day of 2025.
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Despite tensions in the Middle East, gold has fallen by 14%, while the options skew has turned negative.
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Recent performance in financial and commodity markets reveals an unusual pattern: volatility seems to be occurring simultaneously across various sectors. Oil prices are experiencing dramatic fluctuations. The movement of U.S. Treasuries is intensifying. The dollar is appreciating against many currencies. Gold, traditionally viewed as a safe-haven asset during uncertain times, has not only failed to rise but has also declined in price following the outbreak of war in the Middle East, yet it remains volatile. This energy shock has even led to an increase in fertilizer prices, as natural gas is a component of fertilizers.
This synchronized volatility is a classic case of cross-asset contagion. When a shock in one market spills over to seemingly unrelated assets, decision-making becomes complicated for everyone from Federal Reserve policymakers to portfolio managers, businesses, and consumers.
This spillover effect is clearly reflected in the CME Group's CVOL index, which measures market expectations for 30-day forward implied volatility. The index has surged for both oil and Treasuries, with the complete curve measurement of Treasury volatility recently reaching its highest level since the Liberation Day of 2025—a milestone that marked a turning point in market sentiment.
This uncertainty reflects the increasingly anxious sentiment among investors, who are concerned that recent geopolitical tensions may reignite energy-driven inflation that impacts the economy, similar to the period from 2021 to 2023.
<img src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111147503.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111147503.png"/>
For fixed-income investors, the performance of Treasury convexity may be more concerning than the apparent volatility numbers. Convexity is a technical indicator that reflects uncertainty in the direction of the bond market, which has been gradually rising since the end of 2025, but recent events have accelerated this rise since early March, indicating that traders are positioning for price fluctuations greater than normal in either direction.
<img src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111225687.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111225687.png"/>
When convexity rises, it indicates directional uncertainty. Investors are essentially hedging against two scenarios: if inflation reignites, yields will soar; if a weak economy forces the Federal Reserve to aggressively cut rates, yields will plummet. This ambiguity makes portfolio management more challenging and costly, as investors must pay higher premiums to guard against bidirectional volatility.
This uncertainty also appears at a delicate moment for the Federal Reserve, which has been trying to balance its dual mandate of combating inflation and signs of weakness in the labor market. The volatility in oil prices complicates this calculation
<img src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111242684.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111242684.png"/>
If oil prices remain high or continue to rise for an extended period, their inflationary impact may continue to push up gasoline and diesel prices, which would be transmitted to heating costs, transportation expenses, and inflation indicators. In this scenario, the Federal Reserve would have reason to maintain high interest rates for a longer period, and may even reverse recent rate cut decisions.
Conversely, if oil price fluctuations reflect weak global demand or increased recession risks, this could support a more accommodative monetary policy.
<img src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111257955.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111257955.png"/>
The challenge is that the current oil price trend contains factors from both scenarios: a geopolitical risk premium (inflationary) and economic growth uncertainty (deflationary). The Federal Reserve must analyze which signal is stronger, while the bond market is currently indicating through convexity metrics that the future path is unclear.
<img src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111315549.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111315549.png"/>
Market uncertainty peaked on March 13. In the following days, traders quickly repriced based on the latest geopolitical developments, shifting from a lack of clarity to certainty that the Federal Reserve would not raise interest rates. This shift prompted a decline in convexity while the skew ratio increased—this is a key indicator of market directional risk preference. This repricing revealed a significant recalibration: traders who previously expected multiple rate cuts now anticipate far fewer. Yields also rose, reflecting a shift in risk perception from expected low rates to expected high rates.
Perhaps most compelling is the performance of the gold market. Traditionally, investors turn to gold as a safe haven during uncertain times, but this precious metal fell 14% from late February 2026 to late March 2026, with silver declining even more sharply by 19%. In a recent white paper, CME Group Chief Economist Erik Norland explored this anomalous trend and posed the question: The decline in precious metal prices: will this be an opportunity to buy in?
<img src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111343605.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111343605.png"/>
Despite the price drop, gold volatility surged during this period, with the CME Gold CVOL Index reaching nearly a recent high of 44.6375 on March 23, 2026. However, this rise in volatility coincided with a shift in option skew to negative values. This indicates that options market participants are now pricing in a higher probability of a decline in gold, suggesting that even traditional safe-haven assets are not immune to risk. This positioning also marks a significant reversal from the bullish sentiment that was prevalent in previous weeks
<img src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111401191.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="" original-src="https://imageproxy.pbkrs.com/https://www.cmegroup.cn/uploadfile/2026/0420/20260420111401191.png"/>
For investors and policymakers, the key question is: is this volatility a temporary spike related to specific geopolitical events, or does it signal a fundamental shift in market dynamics? The convexity of government bonds has been rising since the end of 2025, indicating the latter, suggesting that uncertainty has been building for months rather than appearing suddenly.
The interconnectedness of today's markets means that shocks in areas like crude oil can quickly ripple across many asset classes. For traders and portfolio managers, understanding these cross-asset relationships is crucial for risk management and position sizing in an environment where volatility itself has become a primary driver of market behavior

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As the volatility in the oil market affects government bonds and precious metals, the turbulence in the energy market may reshape monetary policy. Oil fluctuations have triggered inflation concerns, with bond volatility reaching its highest level since the Liberation Day in 2025. Despite the tense situation in the Middle East, gold prices have fallen by 14%. This cross-asset volatility presents a complex situation for investors and decision-makers, with the rise in convexity indicators reflecting market worries about future price fluctuations

How Energy Market Volatility Reshapes Monetary Policy