Oil extended its rise by about 3%, and the two-year yield led a move higher across the curve. Gold slid toward $4,000, the Dow fell more than 600 points and energy shares rallied.
Thursday's markets split in two: oil up, yields sharply down. On Friday, one side of that split began to close.
By early afternoon Brent was trading at $116.39 a barrel, $3.22 or about 2.8% higher on the day. That is its highest level since late April, according to Reuters, and the contract is up about 6% for the week, which would make three weekly gains in a row. West Texas Intermediate rose 3.6% to $103.10. Heating oil futures rose 1.1%.
The pump price is following. The national average for regular gasoline is $4.29 a gallon, according to AAA, compared with $3.07 a year ago.
A busy backdrop, no single trigger
Several developments came together in the Gulf. Houthi forces said they had attacked Saudi Arabia's Defense Ministry and Aramco facilities. The United Arab Emirates' Ministry of Climate Change and Environment confirmed a tanker oil spill on beaches in Umm Al Quwain. The White House has said the U.S. will not attack Iran before the Nov. 3 midterm elections, yet traders on Polymarket pared their bets that the U.S.-Iran ceasefire would hold through Oct. 24, with that contract falling from 93.5 cents in the morning to 88 cents by early afternoon. None of these events can be singled out as the cause of Friday's move.
Bonds stopped acting as a haven
Thursday's bond rally, the largest one-day drop in the 10-year yield since March 2023, had run against the oil move. Friday's trading partly reversed it. The two-year note led, with its yield about 5 basis points higher at 4.69% by early afternoon. Longer maturities rose less: 4.81% on the five-year, 4.99% on the 10-year and 5.31% on the 30-year, increases of 2.5 to 4 basis points.
The front end rose most, which flattened the curve. Short-dated yields, the most sensitive to Fed expectations, were already higher before Friday's survey data, which showed businesses raising prices at the fastest pace since 2022 and consumers expecting more inflation, and they stayed higher afterward. Oil and yields rising together, rather than moving in opposite directions, is the pattern of an inflation shock rather than a growth scare.
Gold lost another 1.3%, leaving it near $4,007 an ounce and within a few dollars of $4,000 at the end of a bruising week for the metal. The dollar index was flat at 101.68.
Stocks rotate
The Dow Jones Industrial Average fell 610 points, or 1.2%, to 52,258. The S&P 500 slipped 0.4% to 7,632, and the Nasdaq Composite was flat at 25,999. The Energy Select Sector SPDR Fund rose 2.6%, while rate-sensitive utilities fell about 1% and homebuilders 0.7%. The Cboe Volatility Index rose about a point to 20.
Growth scare or inflation scare
One view holds that Thursday's move was about growth and the durability of AI spending, and that the bond market will keep pricing that. The 10-year remains below 5% even after Friday's rise, and equities are still under pressure.
The other view is that inflation is reasserting itself. Oil kept rising, the two-year yield led Friday's move, and the week's surveys point to cost pass-through.
What to watch
Friday's oil settlements and closing yields. After that, the Treasury's two-, five- and seven-year auctions, which together add $183 billion of notes between Monday and Thursday and straddle the Fed's Oct. 28 decision, will show whether buyers demand more yield in an oil shock.