Higher Oil Prices and Inflation Concerns Weigh on Both Bonds and Stocks

The bond market rarely dominates the financial headlines. But with a light economic data release schedule and earnings season largely in the rearview mirror, the bond market took center stage last week. Continued inflation concerns, sparked in part by renewed higher oil prices, pushed global bond yields to levels not seen in almost 20 years. Oil prices pushed higher as negotiations between the US and Iran failed to bring a resolution to the conflict in the Middle East. Higher oil prices lead to higher gas prices, higher airline fares, and higher shipping and manufacturing costs. And inflation pressures bond yields. Indeed, the US 30-year Treasury yield reached a 19-year high, while Japan’s 10-year yield hit a 30-year high, and the French 30-year yield notched an 18-year high.

The financial markets got some relief Wednesday when Treasury Secretary Scott Bessent announced the Treasury would increase purchases of its long-term bonds. The move brought long-term yields lower and pushed stock prices higher. Though the two are not directly correlated, higher bond yields can entice investors to sell stocks and buy bonds. Conversely, when yields fall investors often move funds from bonds to stocks in an effort to earn a higher return. Home Depot and Lowes were seen as beneficiaries of the drop in yields and gained close to two per cent each for the day.

The market failed to build on the gains, however, as stocks ended the week in a choppy fashion. The Dow Jones dropped more than 700 points on Thursday before clawing back much of that with a more than 500-point gain on Friday. Bond yields resumed their push higher Thursday, with market participants skeptical that the Treasury’s bond-buying efforts would have a lasting or meaningful impact. Oil prices also advanced. Friday brought some relief for stocks, in part from a crypto-currency rally. President Trump pushed for passage of the crypto-friendly Clarity Act, which lifted Robinhood, Coinbase, and other crypto-focused stocks. Bitcoin jumped 22 per cent for the week, its best since 2023.

Overall, the benchmark S&P 500 Index ended the week lower, breaking a three-week winning streak. Nvidia could quickly get the Index back on track when it reports its highly anticipated quarterly earnings on Wednesday. Wall Street expects record numbers. Meanwhile, bond yields remain in focus and tariff troubles return, with the US imposing a new 50 per cent levy on select Canadian products.