Uncertainty about interest rates and crude oil prices

Mahmoud Qadan, Gil Cohen

Research output: Contribution to journalArticlepeer-review

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.

Original languageEnglish
Article number9
JournalFinancial Innovation
Volume10
Issue number1
DOIs
StatePublished - Dec 2024
Externally publishedYes

Bibliographical note

Publisher Copyright:
© 2024, The Author(s).

Keywords

  • Bond VIX
  • Forecasting
  • Implied volatility
  • Oil price
  • Options
  • Treasury futures

ASJC Scopus subject areas

  • Finance
  • Management of Technology and Innovation

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