Friday’s changes: Crude oil keeps surging, U.S. stocks fall again, but U.S. Treasuries “aren’t following”—is the market starting to “price in a recession”?

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As global crude oil prices continue to rise due to ongoing geopolitical conflicts and US stock markets fall consecutively, US Treasury yields unexpectedly retreated from their highs on Friday, breaking the recent pattern of rising synchronously with oil prices. This highlights that market pricing logic is undergoing a change.

On Friday, as the conflict between the US and Iran intensified, benchmark WTI crude futures rose to a multi-year high of $99.64 per barrel, while the Nasdaq Composite fell into correction territory. However, the US two-year Treasury yield, highly sensitive to Federal Reserve monetary policy, retreated to 3.90%.

This rare decoupling movement among assets indicates that financial markets are likely approaching a key turning point. While investors briefly chased high-yield bonds this year, their core focus is swiftly shifting from short-term inflation panic triggered by surging energy prices to deep concerns over long-term economic stagnation or even recession.

As verbal interventions to curb oil prices gradually lose effect, and the pressures of US fiscal debt issuance reemerge, Wall Street is being forced to reassess the valuation framework for risk assets and the potential downside risks to the macro economy amid rising energy costs.

Treasuries Decouple as Growth Concerns Overwhelm Inflation Panic

Market charts show that asset prices recently exhibited the classic pattern of “high oil prices, low stock market, high yields,” but US Treasuries significantly deviated from this trend on Friday. Charts clearly indicate that while oil prices continued to climb and US stocks sold off, Treasury yields did not rise as usual, but instead fell noticeably, marking a distinct logical decoupling.

The market provides a dual explanation for this anomaly. According to Bloomberg analysis, on one hand, after yields climbed to their highest levels since mid-2025, the high yields themselves attracted large buying interest, and investors began to doubt whether the energy crisis would actually force the Fed to hike rates contrary to expectations.

On the other hand, a deeper reason lies in the deterioration of expectations for the economic fundamentals. Bloomberg reports BMO Capital Markets’ US rates strategy chief Ian Lyngen: “The front end of the Treasury curve no longer views energy prices as inflation risk to track, but is more focused on economic growth and downside risk for risk assets.” ZeroHedge also notes that investors are shifting from concerns over short-term inflation to fears about long-term economic recession and ongoing supply chain disruptions.

Oil Prices Ignore Verbal Intervention, Supply Crisis Deepens

The robust performance in the crude oil market is the core driver of recent asset volatility. Although President Trump briefly extended the pause on attacks, causing a temporary dip in oil prices, the situation in the Middle East entering its fifth week ultimately pushed prices higher.

According to ZeroHedge analysis, the real impact on the oil market is evolving from flow disruptions to depletion of inventories. Market liquidity is deteriorating, and investors are no longer pricing in a quick resolution to short-term conflicts, but instead are pricing in an escalation and tight supply. Goldman Sachs traders emphasized the limits of verbal intervention, stating, “you can’t jawbone molecules.”

The shock from rising oil prices has sparked concerns over stagflation. Natixis US rates strategy chief John Briggs points out that as long as the Strait of Hormuz remains closed, investors will worry about medium-term inflation and the possibility of central banks reenacting the aggressive tightening responses seen in 2022.

US Stocks Under Pressure, Nasdaq Officially Enters Correction

High energy costs and ongoing macro uncertainty have dealt a heavy blow to risk assets. The Nasdaq Composite fell over 3% this week, officially entering a correction zone, down more than 10% from its historical highs; the S&P 500 registered its fifth consecutive week of decline, marking the longest losing streak since May 2022.

Tech stocks are the hardest hit. Bloomberg Industry Research Strategist Nathaniel Welnhofer notes, the recent tech stock pullback has dropped the Nasdaq’s forward P/E premium over the S&P 500 to just 4.4%—its lowest level since January 2019, and far below last October’s premium rate of 35.7%.

The structure of the options market has also exacerbated the vulnerability of stocks. ZeroHedge points out that as implied volatility rises, the market is in a negative gamma state, and increased volatility triggers more passive hedging sell-offs, further amplifying the index’s decline.

Debt Issuance Pressure Emerges, Market Faces Dual Squeeze

Besides downside risk to the economy, the Treasury market faces real supply-side pressures. According to Bloomberg, Citi economist Andrew Hollenhorst points out that the US government’s prospects for increased borrowing to cope with war costs and refinance debt at higher rates are pushing yields upward. This week’s Treasury auctions concluded at higher-than-expected yields, underscoring the fiscal challenges when rates are rising.

Meanwhile, market expectations for monetary policy have swung sharply. TD Securities rates strategist Molly Brooks says, “The market has made a 180-degree turn, and participants have switched from asking when the next rate cut is, to pricing in future rate hikes.”

In this context, investors must seek a balance between high inflation and weak growth. As Goldman Sachs analyst Tony Pasquariello summarized, the longer the geopolitical conflict persists, the more vulnerable the market becomes to genuine growth panic.

Risk Warning and DisclaimerThe market involves risk, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the individual user’s specific investment goals, financial situation, or needs. Users should consider whether any opinions, views, or conclusions herein are suitable for their particular circumstances. Investing based on this article is at your own risk. ```