FX Implications of Supply-Driven Rally in Yields & Oil

By Ashraf Laidi
10 March 2009 @ 03:42 pm EDT

Oil gains 40% from its February lows, trading at $47.47, and $1.00 below its 100-day moving average, a trend that hasnt been broken since August 2008. The simultaneous advance in US bond yields along with oil prices may appear unusual given the erosion in global economic growth. But it is all about supply as increasing supply of US borrowing (another weekly batch of +$60 billion in US Treasury auctions) and mobilized stocks of US crude oil constitute the main forces behind the ensuing price dynamics in Treasuries and WTI. WTI eyes $51.00 as the next key target, while 10-year yields have yet to breach the 3.05% level.

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