Oil surge sparks Treasury market's worst weekly rout since 'liberation day' chaos

By Joy Wiltermuth

Oil prices scored a record weekly rise as U.S. stocks tumbled

Treasury yields booked their worst weekly rout since last April.

Surging oil prices handed the $30 trillion Treasury market its worst week since President Trump's "liberation day" tariff announcement shocked markets nearly a year ago.

The crucial 10-year Treasury yield BX:TMUBMUSD10Y rose to 4.131% on Friday, up 17 basis points over the past week. That was the rate's biggest weekly increase since April 11, when it surged 50 basis points over five days, according to Dow Jones Market Data.

Trump announced "reciprocal" tariffs on April 2, and paused many of them on April 9 after the bond market's selloff intensified.

Investors this week demanded more yield from bonds as the Iran conflict pushed oil prices toward a two-year high - sparking fears of more inflation at home and abroad, which can severely erode the value of bonds paying a fixed income.

David Kang, CEO of Ducenta Squared Asset Management, a $4 billion fixed-income manager, said surging oil prices have already impacted countries like South Korea that heavily reply on imports and exports.

"Logistics are fundamentally about fuel," Kang told MarketWatch. "The impact of the commodity is more impactful than even the tariffs."

U.S. crude-oil futures (CL00) (CLJ26) posted a record weekly climb of about 36%, settling a $90.90 a barrel on Friday. Global benchmark Brent crude (BRN00) gained about 27% for the week, closing at $92.69, according to Dow Jones Market Data.

"That's been a pretty powerful force," said Peter Graf, chief investment officer at Amova Asset Management America, which manages about $270 billion in assets globally. There's also the matter of U.S. spending to sustain the conflict, he noted.

The cost of the war's first 100 hours was pegged at $3.7 billion by the Center for Strategic and International Studies, though there's been nothing official yet from U.S. Defense Department. However, Treasury Secretary Scott Bessent on Friday announced a $20 billion maritime reinsurance program for the Persian Gulf region, in a bid to revive tanker and shipping traffic in the crucial Strait of Hormuz.

"I have trouble believing this is going to be a long-term thing," said Graf about the Middle East conflict. Overall, he also wouldn't call rising oil prices a shock yet.

Indeed, Treasury yields were struggling for direction Friday after data suggested a surprising loss of jobs in February. That added to concerns that an oil shock and higher bond yields could eventually hurt the U.S. economy.

The Dow Jones Industrial Average DJIA closed 3% lower for the week, its biggest such weekly decline since April 4, while the S&P 500 SPX shed 2% and the Nasdaq Composite COMP fell 1.2%, according to FactSet.

Meanwhile, energy-importing countries were feeling the bond-market selloff especially acutely. "There's definitely a lot of pain out there in European rates in countries with more exposure to energy shocks," said Jan Nevruzi, a U.S. rates strategist at TD Securities.

In the U.K., 10-year yields BX:TMBMKGB-10Y rose as high as 4.69% during the week from a one-week low close to 4.23%, before landing at around 4.47% on Friday.

The concern isn't only about higher oil and gas costs, but that disruptions around the Strait of Hormuz also can squeeze capacity in production and storage in the Middle East. That might lead to more bottlenecks and a more protracted period in terms of getting crude supplies flowing once the conflict ends, said Gannon Earhart, senior rates analyst at TCW.

"It's still to early to say what the impact will be," he noted.

Still, Friday's weak jobs report may put the Federal Reserve's focus more squarely on downside risks to the jobs market rather than inflation risks, Earhart said, adding that could open the door to more rate cuts this year.

"You can't hang your hat on any one print," he said.

-Joy Wiltermuth

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03-06-26 1653ET