This phenomenon is not limited to the U.S. market but extends to European bond markets, where countries most exposed to energy shocks have seen their bond yields rise in tandem with the rise in crude oil prices. From an economic perspective, energy is a key determinant of inflation, as rising prices lead to increased production, transport, and distribution costs, which reflects on the prices of goods and services. With these pressures coinciding with rising bond yields, financial markets have become more sensitive to fluctuations in energy markets, especially in light of ongoing tensions in the Middle East and the decline in the supply of crude oil and its derivatives.
The effects of this correlation go beyond financial markets to reach consumers directly through rising living and financing costs and declining purchasing power. Rising oil prices fuel inflationary pressures, while rising bond yields increase borrowing costs across multiple sectors. The 10-year U.S. Treasury yield is an important benchmark for pricing many financial instruments and long-term loans, including mortgages. Therefore, its rise may be reflected in the interest rates borne by borrowers. If these pressures continue in conjunction with rising inflation and weak economic activity, the chances of entering a phase of "stagflation" may increase.
For Jordan, the danger of this correlation between oil prices and U.S. Treasury yields lies in the economy's exposure to double pressure. Jordan is an energy-importing economy; therefore, rising oil prices increase the import bill and raise transport and production costs, which may reflect on the prices of goods and services and the purchasing power of citizens. At the same time, rising U.S. bond yields may increase financing costs in global markets and raise the cost of external borrowing and refinancing maturing debt upon renewal. This means that the Jordanian economy may face an increase in energy costs coinciding with an increase in the cost of capital, which puts pressure on the current account and public finances and limits the private sector's ability to expand and invest.
At the level of public debt, the challenge is not limited to the size of the debt, but extends to the cost of servicing it and the economy's ability to bear its burdens without affecting development and investment spending. If oil prices continue to rise and are accompanied by U.S. bond yields remaining at high levels, the government may find itself facing additional pressures on the budget, whether through an increased energy bill or increased financing costs when issuing new debt or refinancing existing debt. Therefore, the importance of managing public debt based on maturity dates, borrowing costs, and interest rate risks becomes clear, in parallel with diversifying energy sources and enhancing exports, investment, and productivity. What is required is not only to contain external shocks but to raise the Jordanian economy's ability to generate growth, domestic revenues, and foreign currency, so that fluctuations in global oil and bond markets do not turn into additional burdens on public finances and economic growth opportunities.
