I'm LongbridgeAI, I can summarize articles.Oil is increasingly acting as a major macro risk, with rising prices negatively correlating with both U.S. stocks and long-term Treasury bonds since the U.S.-Iran conflict began in late February. This shift transforms oil from an economic growth indicator into a driver of inflation and higher yields, impacting borrowing costs and equity valuations. Strategists note that Treasuries are now trading like risk assets, losing their traditional safe-haven status amid synchronized moves with oil prices.
By Isabel Wang
Crude is increasingly 'the straw that stirs the drink' of the current global macro risk regime, a Nomura strategist warns
Oil is becoming a bigger problem for both stocks and long-term bonds.
Oil is increasingly calling the tune in global markets, as rising energy prices and worries about how much consumers are paying at the gas pump are making investors nervous and affecting their portfolios.
Since the U.S.-Iran war began in late February, higher oil prices have been bad news for both stocks and long-term Treasury bonds. When crude prices jump, stocks tend to fall. The same is true for long-duration government debt, as higher oil prices have been accompanied by falling bond prices and, in turn, higher yields.
That relationship has become much stronger over the past seven months, as shown in the charts below.
The Iran war appears to have marked a turning point in the relationship between oil and both stocks and Treasurys. Before the war, the relationship between U.S. benchmark West Texas Intermediate crude (CL00) (CL.1) (CLV26) and the S&P 500 SPX was basically neutral, with their rolling 63-day correlation at just 0.04 on Feb. 27. But by the end of March, it had fallen to minus 0.35, and by late April it had reached minus 0.48, according to Dow Jones Market Data. In other words, when oil prices rise, stocks have increasingly tended to fall.
A value closer to minus 1 means a perfect negative correlation between oil prices and stocks, while a number closer to 0 shows the relationship is very weak or even nonexistent.
The same pattern is showing up in long-term Treasurys BX:TMUBMUSD10Y BX:TMUBMUSD30Y. The rolling 63-day correlation between the U.S. oil benchmark and the iShares 20+ Year Treasury Bond ETF TLT fell to minus 0.28 by the end of April, from minus 0.15 on Feb. 27. It was at minus 0.55 on Tuesday morning, according to Dow Jones Market Data.
"Crude oil and energy is 'the straw that stirs the drink' of the current global macro risk regime," said Charlie McElligott, cross-asset macro strategist at Nomura Securities International.
Indeed, oil is increasingly behaving like a macro risk for equities, rather than simply another indicator of economic growth. Normally, higher oil prices can be bullish for stocks because they can signal stronger economic demand. That's partly why the correlation between WTI and the S&P 500 was mostly positive in 2025.
But now, the oil supply shock brought on by the Middle East conflict is propelling energy prices higher as transportation and production costs rise. At the same time, central banks are fighting to keep interest rates higher for longer. That matters to U.S. households because higher rates would directly increase the cost of borrowing money for mortgages, car loans and credit cards. They can also eat into American businesses' bottom lines, squeezing corporate margins and weighing on equity valuations.
"Treasury yields are now impacted less by safe-haven flows and more by inflation expectations, and the correlation between yields and oil prices is at its highest level for seven years," said Kathleen Brooks, research director at XTB.
In other words, the oil shock is having a direct impact on U.S. financial conditions, Brooks told MarketWatch on Tuesday.
The yield on the 10-year Treasury note BX:TMUBMUSD10Y was up 2 basis points, to trade at 5.040%, its highest intraday level since July 19, 2007. The 30-year rate was also up 2 basis points, at 5.369%, according to FactSet data.
"I've always found it somewhat odd that front-month oil correlates so highly to the 10-year Treasury [yield], but their increasingly synchronized moves reflects not only inflation is at risk but real rates are backing up substantially," said Nate Shetty, chief investment officer at SEI Investments Company.
Real interest rates are nominal interest rates minus the inflation rate. When they rise substantially, it means money is genuinely becoming more expensive to borrow for U.S. consumers and businesses in terms of actual purchasing power.
"We are believers that Treasurys have lost their flight-to-quality positions," Shetty told MarketWatch in a phone interview on Tuesday. "In other words, the negative correlation we've seen in 20 years past between Treasurys and stocks has now flipped to the positive."
"Another way of saying this is that Treasurys are going to trade like risk assets, and in fact, they are," he said.
Of course, equities won't escape rising oil prices unscathed. "When the consequences of a geopolitical crisis roils oil markets and bruises the bond market, it is only a matter of time before equities get hit," Brooks of XTB added.
Opinion: Stocks have so far survived rising Treasury yields. But that may be about to change.
But aside from this week's tech selloff following calls from Anthropic CEO Dario Amodei and other executives to slow artificial-intelligence development, U.S. stocks have been resilient. The Dow Jones Industrial Average DJIA was off just 0.4% so far this quarter, while the S&P 500 has risen 1.2% and the Nasdaq Composite COMP was down 0.9%, according to FactSet data.
-Isabel Wang
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