The two-year US Treasury yield rose as much as ten basis points to 4.11% as crude prices soared after an unexpected OPEC+ announcement of an oil production cut over the weekend.
WTI and Brent Crude jumped as much as 8% today, with Brent Crude climbing from $79.93 to $85.93 per barrel on the news that starting in May OPEC+ would be cutting production by over a million barrels a day until the end of the year due to a decreased demand.
The unexpected announcement revived worries about inflation and led traders to price in a higher cut-off rate for the Fed. The Bloomberg Dollar Spot Index gained 0.4% before erasing the move.
Fed Bank of St. Louis President James Bullard told Bloomberg Television Monday that OPEC+’s decision to cut output was unexpected and an increase in oil prices could make the Fed’s job of fighting inflation more challenging. “Whether it will have a lasting impact, I think is an open question,” he said.
Oil fell to a 15-month low last month as tightening credit conditions ensued by the banking crisis enhanced expectations of an economic slowdown.
In the early days of the banking crisis, portfolio investors dumped petroleum futures and options at one of the fastest rates on record as traders anticipated a higher likelihood of an economic downturn hitting oil consumption. During that week hedge funds and other money managers sold the equivalent of 139 million barrels in the six most important futures and options contracts over the seven days ending March 14, as reported by Reuters. The sales volume was the 12th largest in the 522 weeks since ICE Futures Europe and the U.S. Commodity Futures Trading Commission started to publish records in this form in 2013.