TS Lombard economist Steven Blitz says oil has become a key driver of US Treasury yields. His analysis found that each $1 move in West Texas Intermediate since 2012 was associated with a nearly 2-basis-point move in the 10-year yield, which topped 5.1% Thursday.
Brent crude futures have risen about 40% since the US-Iran war began, heightening concern that energy prices will keep inflation elevated and prompt investors to demand higher yields on long-term debt. The weeks-long US bond sell-off also reflects persistent inflation, heavy government borrowing and competition for capital.
Higher Treasury yields affect mortgage, auto-loan, credit-card and business borrowing costs, and can weigh on stock valuations. Japan’s 10-year government bond yield also reached a three-decade high Thursday as the Bank of Japan unwinds years of ultra-loose policy, making Japanese debt more attractive to domestic investors; Japanese investors have long been among the largest overseas buyers of US Treasurys. Blitz says a 5% 10-year yield still underprices inflation risk and argues short-term Treasury bills may be a better choice for a one-year horizon if the Fed continues raising rates.
