Treasury Yields and Commodities race higher over global economic recovery

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Vrasidas Neofytou
Head of Investment Research

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Treasury Yields and Commodities race higher over global economic recovery

Sovereign bond yields and commodities continue their recent bull ran into fresh highs as investors are more focus on global economic recovery, vaccine progress, and inflation-hedge trades.

Investors are also focus on the commodity-led currencies such as Canadian, Australia, and New Zealand dollars that have close ties to the global energy and raw material trade, which are also benefiting from the improving global economic outlook and concerns over rising inflation.

Elevated Bond Yields:

Market participants are watching the elevated US bond yields hitting fresh 13-month highs, expanding the recent bullish momentum.

The 10-year US Treasury Yields surge up to 1.40% while the Yields of the longer maturity 30-year US Treasury break above 2.17%, driven from the concerns for higher and faster inflation rates over the well-expected Biden’s $1.9T pandemic-led fiscal stimulus.

The rapidly rising bond yields have threatened the global traders as they could harm the high-growth companies dependent on the zero-cost borrowing and their future earnings. 

As a result, the global stock markets posted significant losses during Monday morning, with Chinese index CSI 300 settling 3% lower, while the US equity futures are indicating an opening with 1% losses.

Hot Commodities:

Commodities sector continues receiving buying demand benefiting from the reflation bets, massive vaccination, and the growing hopes for a global economic recovery in 2021 which would increase the demand for raw materials and energies.

The red metal-Copper is expanding its unprecedented bull run started last year, with its price already touching the $4.20/lb, up 20% so far in 2021, and more than 100% up since the pandemic-led lows of $2/lb in March 2020.

Crude oil prices have recovered the $60 a barrel mark last week for the first time since February 2020 on robust demand from Asia, on-going OPEC’s production cuts, and the recent cold-led supply disruptions from oil-rich Texas. WTI crude rises as high as to $60/b before retreat to $59.50/b, while the international Brent crude contract reached the $66/b mark, climbing to pre-pandemic levels.

Commodity currencies rise in tandem with Commodity prices:

Commodity currencies have been benefiting from higher commodity prices as well as from the recovered exports of raw materials and inflation-hedge demand. The Commonwealth currencies, Canadian, Australia, and New Zealand dollars hit fresh 3-year highs against safe-haven US dollar at $1.265, $0.786, and $0.73, respectively.

Hence, the energy-led currencies Norwegian Crone, and Mexican Peso posted significant gains vs US dollar, followed by the Russian Rubble, which trades at 6-month highs thanks to higher energy and base metal prices.

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