The Last Two Times Oil Jumped This Much, U.S. Bond Yields Plunged

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January 15, 2017 7:35am NYSE:TIP

From Eric Bush: It is somewhat hard to believe, but oil prices are up nearly 90% over the past year. The past two times oil prices have increased this much year-over-year, US 10-year bonds rallied quite significantly.


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.

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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 assetsĀ has gained 0.72%, versus a 1.57% rise in the benchmark S&P 500 index during the same period.

TIP currently has an ETF Daily News SMART Grade of A (Strong Buy), and is ranked #1 of 14 ETFs in the Inflation-Protected Bond ETFs category.


This article is brought to you courtesy of Gavekal Capital.


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