Stock market today: Dow, S&P 500, Nasdaq tumble as oil climbs, investors weigh Meta, Tesla earnings

If oil is about to spark an inflation wave, the bond market hasn’t heard about it.

The 10-year Treasury yield (^TNX) is on track for its biggest one-day drop in more than two years on Thursday, slipping back below 5% as stocks slide. The 5-year yield (^FVX) is falling even faster. Meanwhile, Brent crude (BZ=F) is hovering around $112, up more than 50% since the Iran war began in late February.

The surprise is how little the oil spike has moved the bond market’s inflation forecasts.

The 5-year breakeven — the inflation rate implied by the gap between regular Treasurys and inflation-protected TIPS — is a bit lower now than it was before the war.

The 5y5y inflation swap is the market’s forecast for average inflation over the five years starting five years from now, and the Fed watches it closely for signs that expectations are slipping. It has barely moved.

So the jump in yields since February has been almost all about real rates — not inflation. Traders are betting the Fed keeps policy tight enough that $110-plus oil doesn’t turn into lasting inflation.

Not everyone buys it. Bloomberg strategist Simon White argues breakevens are “mispricing” the oil shock.

Elsewhere in bondland, France’s 10-year yield is above the US 10-year for the first time since 2013.

Next up is the 5-year TIPS auction at 1 p.m. ET. Bloomberg’s Alyce Andres calls it a referendum on the Fed’s inflation bet under Chair Kevin Warsh. Weak demand would signal investors are starting to doubt it.