Treasury yields whipsaw as oil spike looms over Fed

Treasuries opened softer this morning, but Friday's trading was nothing short of insane.

One thing happened, which did seem to make sense, the yield curve finally had a day of steepening, but that was about it.

After opening weaker in front of a shockingly soft jobs report, the 5-year yield dropped 7+ bps in the minutes that followed but went back up 8 bps to a new high for the day in the next hour. It reversed again and by 1:00 made had made a new low yield for the day before a late fade produced a better close, but one near the middle of the daily range. The 10-year did about the same thing as the 5-year, but the 30-year remained under more pressure and closed a little worse on the day so while there were large outside daily bars, calling them reversals would be misleading.

The weekly charts finished with a more negative look and I'm wondering if this might not be a good time to focus on the forest instead of the trees. I often repeat that trendlines are notoriously expensive to trade but they do serve a purpose since they both graphically and mathematically define trends. Looking back to the yield troughs from Friday 2/27, when the 5-year yield reached its lowest level since October 2024, you can see a remarkable example of just that.

After spending parts of 3 days briefly dipping below a trendline dating back to 2023, the 5-year yield finally convincingly broke below the trendline when it gapped down in yield on the 27th only to gap back up in yield the following Monday leaving a bearish 1-day island reversal.

The 10-year yield spent only the 27th below a trendline drawn from April of 2025 and its low yield on the 27th nailed a trendline drawn from 2023 before it gapped up in yield on Monday leaving a bearish 1-day island, and the 30-year yield also spent only the 27th below a trendline from April of 2025 and it also left a bearish 1-day island.

Yields haven't exactly screamed away from those islands but I'm beginning to worry about death by 1000 cuts.

Sitting at my computer late Friday I noticed how at that day's opening crude oil futures had broken above $89 a barrel for the first time since 2022, and then they broke above 90 by noon, 91 around 12:30, finally reaching 92.61 by 12:45, up more than $11 on the day.

Then at one point last night saw oil up nearly $29 to $119.48, a level not seen since 2008. By this morning it had dropped back to around $102, but I'd still like to know who bought enough of it to run the price $4 in front of last weekend when the war began, even though now that barely looks like an uptick.

Friday's volatility extended into Fed Fund futures as the odds for the next rate cut oscillated between July and September multiple times, finishing up favoring a cut in July, although now it's back to September.

The Fed could have a real problem on their hands if the jobs markets continue to soften and oil continues to rise.

We get CPI on Wednesday, but it won't reflect any impact from the spike in oil prices.