Oil price declines are easing inflation expectations, making the Federal Reserve less likely to maintain restrictive policy, which should support Treasury prices and push yields lower.
Too little corroboration in the last 3 days to call a trend (2 articles). Watching for it to gain traction.
The core thesis holds that falling oil prices reduce inflationary pressure, giving the Fed room to ease, which would be bullish for Treasuries. However, the Yardeni quote introduces a counterpoint, warning that a breakdown in the US-Iran ceasefire could reignite energy price acceleration and reverse that disinflationary dynamic.
Energy prices function as a leading input into inflation expectations, and when oil moves materially, it tends to reprice the entire rate path that bond markets are discounting, making it one of the more direct transmission channels between commodity markets and Treasury yields.
"Veteran strategist Ed Yardeni said the rupture in the ceasefire between the US and Iran risks sparking a fresh acceleration in price growth, which in turn could compel the Fed to raise interest rates. 'Inflation concerns are back in play and as a result of that, the Fed is back in play. Not only has the Fed pivoted to tightening, but they may actually have to tighten.'"
"Oil prices have moved well off their recent highs, with crude now trading in the $60-$70 range. That decline has eased concerns about headline inflation by reducing energy-related cost pressures across the economy. As inflation expectations have moderated, the market has become more comfortable pricing in a less restrictive Federal Reserve policy."