In 2008, oil was up over 100% in July and bond yields were hovering just over 4%. Ultimately, yields fell to 2.10% as the year-over-year change in oil dropped to -63% by the end of that year. In 2010, oil prices had climbed over 120% year-over-year and bond yields were around 3.60%. By August 2010, the year-over-year change in oil had fallen to about 0% and yields had dropped to 2.4%. Yields have fallen by 22 bps since making a high in mid-December. Given the significant increase in oil prices in the past year, the decline in bond yields may just be beginning.
The iShares Barclays TIPS Bond Fund ETF (NYSE:TIP) closed at $113.98 on Friday, down $-0.20 (-0.18%). Year-to-date, the largest U.S. bond-focused ETF with over $42 billion in assets has gained 0.72%, versus a 1.57% rise in the benchmark S&P 500 index during the same period.
This article is brought to you courtesy of Gavekal Capital.