Uncertainty about interest rates and crude oil prices

Mahmoud Qadan () and Gil Cohen ()
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Mahmoud Qadan: University of Haifa, Faculty of Social Sciences, School of Business
Gil Cohen: Western Galilee College, School of Management

Financial Innovation, 2024, vol. 10, issue 1, 1-14

Abstract: Abstract The yield on the 10-year U.S. Treasury Note is among the most cited interest rates by investors, policymakers, and financial institutions. We show that the 10-year Treasury yield’s forward-looking volatility, a VIX-style measure that is a proxy for uncertainty about future interest rates, is a useful state variable capable of predicting the returns and volatility of crude oil prices over the near term. Using monthly data from 2003 to 2020, we document that higher implied volatility in the 10-year U.S. Treasury derivatives market predicts declining oil prices and higher forward-looking volatility in those prices. Our results are robust to different subsamples and various empirical designs.

Keywords: Bond VIX; Forecasting; Treasury futures; Options; Implied volatility; Oil price (search for similar items in EconPapers)
JEL-codes: G12 Q43 Q47 (search for similar items in EconPapers)
Date: 2024
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DOI: 10.1186/s40854-023-00551-w

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