The strong relationship between Oil futures and Treasury yields that defined much of 2026 broke down over the past month. Oil prices continued to rise while bond yields declined, a shift that BlackRock portfolio manager Jeffrey Rosenberg says carries important implications for investors.
“Oil and treasury yields had this amazing correlation and in October it just stopped,” Rosenberg said on CNBC’s “ETF Edge.” He noted that oil and Treasuries had shown an 80% correlation during the year, well above typical levels, as markets responded to the inflationary implications of higher oil prices.
Federal Reserve Chair Kevin Warsh highlighted rising oil futures during a recent FOMC press conference, saying the trend remains relevant to the central bank’s fight against inflation. Rosenberg, however, argued that the market’s reaction revealed another concern: investors may now see risks surrounding artificial intelligence as more significant than geopolitical risks linked to oil.
The shift became particularly visible during a retreat in technology stocks, including the Nasdaq’s sharp decline and Google’s largest one-day drop, which erased about $500 billion in market value. Rosenberg said bond yields fell because markets interpreted weakness in AI-related investments as a potential sign of broader weakness in the U.S. economy.
He linked that view to recent GDP data, saying much of the economy’s growth has been connected to AI through business investment and the wealth effect on consumers. Third-quarter business investment increased 12.7%, its largest rise outside the pandemic since 2011. Investment in information-processing equipment climbed 37%, while industrial equipment investment rose nearly 25%, partly reflecting data-center spending.
Warsh offered a different assessment, arguing that the strength in capital expenditure is broadening rather than being limited to a few technology-related areas. He said the data made it increasingly difficult to describe the economy as strong only in narrow pockets.
Rosenberg said the market nevertheless appeared to treat any weakness in the AI trade as a threat to the U.S. growth outlook and as disinflationary. In that environment, long-term Treasuries could act as a hedge, although he warned that this does not represent a return to the traditional pattern in which bonds consistently offset stock-market declines.
Inflation remains a major obstacle for fixed-income investors. Oil prices are still rising, inflation remains above target and those factors limit the Federal Reserve’s ability to provide monetary support. Rosenberg said a sufficiently large reversal in the AI trend could still produce a disinflationary shock and push bonds higher, but investors should not assume the relationship will move in only one direction.
The AI investment boom is also becoming an increasingly important part of the corporate bond market. As major technology companies’ capital spending needs exceed their free cash flow more often, hyperscalers are expected to issue substantially more debt. Rosenberg said global bond markets, estimated at $40 trillion to $60 trillion, could absorb roughly $4 trillion in additional AI-related debt over the next four years, although capacity is not unlimited.
Greater issuance could put downward pressure on bond prices and raise credit spreads. Microsoft’s return to the public bond market, after an absence of nearly a decade, attracted strong demand and was oversubscribed. Rosenberg said moving more hyperscaler debt into public markets would improve transparency through observable bond prices and credit-default-swap spreads.
Microsoft’s CDS spreads were trading near a five-year high at around 55, according to Rosenberg, but remained far below Oracle’s level of close to 300. He said CDS markets could offer investors a way to hedge exposure to the AI boom without directly purchasing bonds in an environment marked by inflation and fiscal concerns.
Rosenberg said the widening activity in hyperscaler credit markets does not necessarily indicate a high probability of default. Instead, it reflects growing pressure on banks and other financial intermediaries to find counterparties for the risks created by the companies’ expanding borrowing needs.
He described the recent volatility as a reset rather than the end of the AI investment story. In his view, the boom remains positive overall, but the market is beginning to experience a more balanced cycle in which optimism is accompanied by periods of fear, repricing and greater investor scrutiny.
Sources: CNBC Markets.