US Oil prices and the 2-year treasury yield correlation has been strong ever since Trump won the elections. But from late Feb, the two have been moving in the opposite directions. The reason is quite clear - markets positioned for a March rate hike... given the hawkish talk from the Fed officials. The question now is will the yields follow oil prices?
It all depends on what the Fed says this week. If the central banks sees scope for faster tightening, the divergence would widen. Also upbeat comments on core inflation would mean less correlation between oil and 2-yr yield.
On the other hand, an unchanged dot plot chart could see yields correct...even in the face of a recovery in oil prices.