Yields, Oil Extend Their Divergence on Rising Slowdown Angst: March 30, 2026

Yields and oil are extending their divergence this morning as investors increasingly factor in the economic slowdown implications of surging crude costs rather than the inflationary effect. WTI jumped north of $103 today, but rates are plunging across the curve as a prolonged Middle East conflict risks hurting consumer spending, hiring, corporate revenues and profit margins. Furthermore, President Trump is escalating threats against Tehran and its energy infrastructure while preparing for potential ground operations as US troops arrive in the region. The development has some observers worried about a lengthened war, while others think that this raises the odds of a deal. Equity enthusiasts appear to be in the latter crowd, however, with stocks bouncing and hedges being unwound amidst all major domestic benchmarks and 11 sectors advancing after two painful consecutive sessions of losses. The commodity complex and the greenback are gaining too, as they benefit from safe-haven bids, while cryptocurrencies rally, signaling a revival in animal spirits on Wall Street. Prediction markets are additionally seeing engagement as traders seek non-correlated opportunities to navigate the volatility.

Are Rates Dropping for the Right Reason?

Lower interest rates are typically great for stock market performance, all else equal, as they are conducive to raising risk premiums and bolstering valuations while subduing borrowing expenses for households and corporates alike; however, the reason that yields are dropping is a significant consideration for portfolio managers. In light of substantial price pressures resulting from the surge in oil that would normally raise fixed-income coupons, the Treasury curve is plunging instead as risks of an economic slowdown mount and overwhelm projections of heavier inflation. And if that path widens, the potential weakening of consumer spending, hiring and capital expenditures as a result of heightening recession vulnerabilities won’t bode well for the number one driver of equity appreciation, which is corporate earnings. Still, we’ve been overdue for a technical bounce whether or not the events of the weekend leave investors believing that we are either closer to an amplification of the war or nearing a ceasefire. Indeed, volatility levels remain quite elevated with a VIX near 30, meanwhile, as the former case will likely send shares towards a deep correction, while the latter is poised to spark a ferocious recovery.

International Roundup

Consumer and Business Sentiment Falls in Europe

The Economic Sentiment Index (ESI) sank from 98.2 in January for both the euro area and the European Union (EU) to 96.7 for the former and 96.6 for the latter, according to the European Commission. Similarly, the Employment Expectations Indicator (EEI) also sank 1.3 points in the EU to 97.3 and 1.4 points in the euro area to 96.4. Within the EU, confidence in construction improved modestly and industry was stable but weakness among consumers, retailers and service managers pushed the ESI down. The index sank the most in France, Spain, the Netherlands and Italy. More broadly, current level of order books supported manager’s sentiment within industry but demand expectations hurt results in the services sector. Retailers, furthermore, experienced declining confidence in business expectations during the coming three months. At the same time, businesses, overall, anticipate increasing their prices. Regarding consumers, pessimism about the overall economic situation has intensified. Consumers also became markedly more downbeat about their household’s future financial situation and less prone to make major purchases over the next 12 months.

In another release, the European Commission reported that the Economic Uncertainty Index was up three points driven by industry, retail and services.

BOJ Governor: We Are Watching Currency

Bank of Japan Gov. Kazuo Ueda told lawmakers today that businesses have become more likely to pass higher costs onto customers as currency swings impact input charges. He warned that currency swings could affect underlying inflation. A recent summary of monetary policy from the central bank showed that policymakers are moving closer to raising interest rates after deciding earlier this month to maintain the current benchmark at 0.75%.

UK Mortgage and Consumer Debt Exceeds Expectations

The net value of UK mortgages rose by £4.8 billion in February, up from £4.2 billion in the preceding month, according to the Bank of England. The result was higher than the economist consensus estimate of £4.1 billion and exceeded the six-month average of £4.5 billion. Meanwhile, financial organizations approved 62,584 mortgages compared to 60,246 in January. Economists anticipated that mortgage approvals would total 61,000.

Also in February, net lending to individuals climbed to £6.8 billion from £5.9 billion in January, a reversal from the economist consensus estimate for a decline to £5.6 billion. Consumer credit also expanded, rising from £1.828 billion in January to £1.935 billion and exceeding the consensus estimate of £1.6 billion.