Wednesday, 17 April, 2019

WTI Has Just Fired Starting Gun on U.S. Treasuries Selloff

By Mark Cudmore

(Bloomberg) —
The WTI rise has just gone critical for the Treasuries market. Monday was the first time since November that WTI was up on a y/y basis. That will make the inflation impact far more real and see yields climb until WTI turns back negative y/y.

In fact, charting WTI versus the same contract lagged by one year provides an exceptional guide to how U.S. yields will move. The last period where WTI was up y/y for a sustained period was Oct. 20, 2017 until Nov. 13, 2018 and 10-year yields climbed 76bps in that period. The previous episode was Nov. 7, 2016 until May 25, 2017 and that resulted in a 43bps gain for U.S. 10-year yields.

It’s quite clear from the chart below that the opposite situation, when WTI is down y/y (white line below blue line) has seen yields slump.