• 6 minutes Trump vs. MbS
  • 11 minutes Can the World Survive without Saudi Oil?
  • 15 minutes WTI @ $75.75, headed for $64 - 67
  • 2 hours U.S. Shale Oil Debt: Deep the Denial
  • 16 hours Satellite Moons to Replace Streetlamps?!
  • 1 day EU to Splash Billions on Battery Factories
  • 13 hours The Dirt on Clean Electric Cars
  • 1 min Why I Think Natural Gas is the Logical Future of Energy
  • 11 hours Owning stocks long-term low risk?
  • 4 hours Can “Renewables” Dent the World’s need for Electricity?
  • 2 days US top CEO's are spending their own money on the midterm elections
  • 2 days A $2 Trillion Saudi Aramco IPO Keeps Getting Less Realistic
  • 2 days 47 Oil & Gas Projects Expected to Start in SE Asia between 2018 & 2025
  • 2 days The Balkans Are Coming Apart at the Seams Again
  • 1 day The end of "King Coal" in the Wales
  • 2 days Uber IPO Proposals Value Company at $120 Billion
Alt Text

Is South America Set For A Gold Rush?

A Chinese gold miner is…

Alt Text

China Is Now In Control Of Global Silver Prices

China, an unofficial price-setter for…

Matt Smith

Matt Smith

Taking a voyage across the world of energy with ClipperData’s Director of Commodity Research. Follow on Twitter @ClipperData, @mattvsmith01

More Info

Trending Discussions

Why Financial Markets don’t Follow the Old Rules Anymore

My favourite moment of the working day is doing a dot-to-dot. And it happens every morning, after booting up my computer; I look across the various asset classes, and start connecting the dots.

After the first few screens, it becomes progressively easier to predict what is coming next: dollar down = risk on, equities up = bond prices down, risk off = metals down. But joining the dots has gone askew recently. So from the starting point of mortgage rates to a crude conclusion, here’s how joining the dots isn’t as simple as going from A to B.

Whether financial markets float your boat or not, what is a useful thing to know if you have a mortgage, want to buy a house, or want to refinance, is the biggest influence on mortgage rates. And while logic dictates that a 30-year government bond would be a decent guide for a 30-year mortgage rate, that would be somewhat inaccurate. It is actually a 10-year treasury bond:

30 year mortgage rate

Related article: Does Suncor Energy Offer a Good Investment?

It is also fair to say that mortgage rates are low when times are hard, with low interest rates to stimulate borrowing and bond yields driven lower by a flight to safety.

It is also fair to say that as optimism in the economy improves, greater risk appetite should mean bond yields (and mortgage rates) should rise, and equities should see a corresponding rally.

And we have. That is, until the past few months, when we have seen the two diverge:

10 year treasury yield

So what does this mean? Well, at the crux of it, one of the markets appears to be wrong.

Falling bond yields indicate the battening down of hatches, while equities indicate better times ahead. And what is doubly interesting is that commodities – and specifically oil, which has taken part in the risk-on trade for much of the recovery of the last few years – is diverging also:

Related article: Unconventional Investments in Oil Sands Companies

Brent Crude Oil

Which leaves us at a fascinating juncture. Either commodities/bonds are correct, or the equity market is. Regardless, one is lagging, and will likely experience a significant correction in the coming months – be it equities tumbling, or commodities/bond yields melting up. Or even a bit of both.

Either way, today sees the S&P500 within grasping distance of a new record high, while on the same day mortgage rates are making record lows. The dots, for now…….do not connect.

By. Matt Smith


x


Back to homepage

Trending Discussions


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News