The Effect of Oil Prices on Bonds Oil price variations have strong consequences on economic activities. The world price of oil has had strong influences on the fluctuations in securities prices. Rising oil prices are seen to be one of the cause for declining stock prices, weakness in dollar exchange rate, and some movements in government bond yields. The U.S Federal Reserve makes adjustments on U.S interest rates based on their prediction of the economy. With the rising oil prices of recent years, there are fears that bond prices would drop below GDP growth rates like what happened in the oil crisis of the 1970s. However, with the rising prominence of low-cost producing countries such as India and China along with more energy efficient production, the world economy is not as adversely affected as before. As a result, bond prices can be expected to go down as the world oil price continues to rise, but within acceptable levels. The two most significant consequences from surging oil prices are the inflation and the economic slowdown. If the U.S Federal Reserve believes that hi......

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