Oil-price Innovations and the Treasury Term Premium: Evidence from 2010-2026

Abstract

Oil-price innovations are positively associated with the Treasury term premium, but the composition of the associated yield movement changes across periods. Monthly local projections compare 2010–2019 with 2022–August 2026 using an activity-orthogonal oil innovation and a common full-sample scale. The contemporaneous Adrian–Crump–Moench term-premium coefficients are 8.1 and 6.3 basis points, and the corresponding Kim–Wright coefficients are 4.1 and 4.7 basis points. Expected-short-rate-path estimates are smaller and imprecise. A common-regressor decomposition locates the earlier market-yield association predominantly in breakevens and the later association predominantly in TIPS real yields. The between-window change in the breakeven-minus-real-yield coefficient is −14.5 basis points, with a calendar-aware HAC standard error of 4.3 and a block-wild-bootstrap interval of [−24.3, −5.2]. This composition change is more clearly resolved than the change in the total termpremium coefficient. The positive premium association is preserved under nominal-oil and alternative CPI treatments, although the later ACM estimate is more inference-sensitive than its earlier counterpart. The findings distinguish a recurring premium association from a changing market-yield composition and provide a component-level account of energy-related Treasury repricing. The estimates are conditional associations with an oil-price innovation, rather than causal responses to a uniquely identified supply shock.

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