Oil and Treasury yields moved together before. They're moving together now. The correlation hit its highest point since 2019. Financial media noticed a pattern and decided patterns mean something.
Here's what happened: two numbers went up and down at the same time. Traders saw the numbers. Traders remembered 2019. Traders forgot that 2019 also had different numbers that also moved together until they didn't. Now everyone's convinced this time the correlation matters because it's been seven whole years since it mattered this much, which is exactly how long it's been since it didn't matter at all.
The 10-year yield and crude oil have a relationship. It's the kind of relationship where sometimes they talk and sometimes they don't and sometimes they show up to the same party and leave at the same time and everyone writes think pieces about what it means for the housing market. Back in 2019 they were close like this. Then they weren't. Then the world ended. Then it didn't. Then they started carpooling again.
Retail traders are now adjusting their portfolios based on a statistical artifact that exists because someone decided to measure it. They're buying oil stocks and selling bonds or selling oil stocks and buying bonds or doing neither but feeling very informed about the correlation coefficient. They've opened TradingView. They've drawn lines connecting the peaks. They've posted screenshots with arrows and circles and the word ALERT in red text.
The bad news for markets isn't the correlation. It's that thousands of people just learned the word correlation and now have access to margin.
Photo by Maxim Hopman on Unsplash
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