International crude oil prices and US bond yields both rise, increasing market risk margins.

Recent market developments have attracted widespread attention. The phenomenon of international crude oil prices and US Treasury yields rising in tandem is reshaping investors’ expectations for the future. Especially against the backdrop of intertwined policy and geopolitical tensions, this trend may signal upcoming greater market volatility.

Oil Prices and Bond Yields Rising Together, Market Signals Contradict Each Other

On Monday (January 12), international crude oil prices showed strong performance, with WTI crude rising 1.8% to $59.91, approaching the $60 mark, marking three consecutive trading days of gains. Meanwhile, the 10-year US Treasury yield climbed to 4.2%, further distancing itself from the 4% level. This seemingly contradictory phenomenon—rising oil prices alongside increasing interest rates—exactly reflects the complex situation currently facing the market.

From a supply and demand fundamental perspective, although overall supply of international crude oil remains ample, geopolitical risks are supporting prices. Iran, as the fourth-largest producer in OPEC, exports nearly 2 million barrels per day. Against the backdrop of OPEC+ announcing a pause on production increases in the first quarter, Iran has become a key factor in pushing up international crude oil prices. Investors generally worry that regional tensions will escalate further, reducing supply and driving international oil prices higher.

Geopolitical Tensions Escalate, Policy Pressure Becomes a New Variable

This week, domestic and international events are accelerating. Anti-government protests in Iran have expanded in scale, with violent clashes intensifying. On Monday, the Trump administration announced a 25% tariff on all trade with Iran. While some market participants believe this temporarily reduces the likelihood of military intervention, based on past experiences with Venezuela and US military actions against Iran last year, limited military intervention cannot be ruled out.

More notably, the independence of the Federal Reserve is under scrutiny. Fed Chair Powell is under criminal investigation, causing bond market volatility. Major bond investment firms unanimously believe that this political pressure is creating market instability, which will keep US Treasury yields elevated, thereby increasing the costs of mortgages, corporate loans, and other credit forms. Former Fed Chair Yellen sharply condemned this move on Monday, warning that markets are underestimating the damage to the Fed’s independence.

Weak Labor Market Data, Institutions Collectively Delay Rate Cut Expectations

Last Friday, the US Department of Labor released December data showing non-farm payrolls increased by 50,000, below the expected 60,000; however, the unemployment rate unexpectedly fell to 4.4%, and wage growth rebounded, temporarily alleviating concerns about a deteriorating labor market.

However, after the data release, major institutions adjusted their expectations. Morgan Stanley, Goldman Sachs, and Barclays delayed the first rate cut by the Fed to mid-2026, with JPMorgan even withdrawing its January rate cut forecast, predicting that the next policy move will be a rate hike. This collective shift reflects a new understanding of the resilience of the US economy and the persistence of inflation.

Japan Risks Spill Over, Global Asset Prices Face Reassessment

On Tuesday, Japanese government bond yields hit record highs, with the 10-year yield rising to 2.174% and the 20-year yield to 3.156%. Prime Minister Fumio Kishida is considering dissolving the House of Representatives on the 23rd, with a general election planned for mid to late February, sparking concerns over further economic stimulus and debt issuance. The yen weakened across the board, with USD/JPY rising to 159.0, a one-year high.

Due to Japan’s inflation remaining high and real interest rates still negative, along with widening monetary policy divergence between the US and Japan, Japan’s fiscal expansion expectations further weaken the yen. Investors should be alert to the possibility that continued yen weakness may trigger strong intervention by the Bank of Japan, while rising Japanese government bond yields could induce a contagion effect on major global bond yields.

US CPI Becomes a Key Turning Point

In summary, the greatest risk facing the market now stems from conflicting government and central bank policies. The upcoming US December CPI data will be a crucial turning point for market direction. If the data shows a rebound in inflation, it will likely intensify conflicts between the government and the Fed, triggering greater market turbulence. Conversely, if inflation continues to decline, focus will shift to the actual developments in geopolitical tensions. Regardless, investors should remain vigilant to recent policy uncertainties and geopolitical risks.