Diesel prices have pulled back slightly from a recent high but remain far above where they stood a year ago, and the gap is starting to show up in an unusual place, the bond market. The national average for diesel sat at $6.277 a gallon as of early October, according to AAA, down from a peak of $6.528 but still 71% higher than a year earlier. Crude oil, by comparison, is up 56% over the same stretch, leaving diesel roughly $2.60 a gallon more expensive than it was last year.
Amrita Sen, director at Energy Aspects, has pointed to a shift that began in May, when the yield on the 10 year Treasury note started tracking diesel prices more closely than it tracks crude oil, a correlation analysts say has not been this tight before. Diesel powers the trucking, shipping, and farm equipment that move goods through the economy, so a spike in its price feeds into the cost of nearly everything else faster than a rise in crude alone, which is why bond investors are watching the diesel market as a read on where inflation is headed.