3 Apr 2024

Impact of Higher Oil Prices on US Breakeven Rates 🛢️

📈 In recent months, the surge in oil prices has played a pivotal role in the noticeable increase in US Long Term breakeven rates, with a significant rise of 20 bps since the end of December. This trend underscores the nuanced dynamics that influence US Treasury nominal rates, which are comprised of the sum of real yields and inflation expectations (as captured by breakeven rates), alongside the impact of the term premium on longer maturities. Traditionally, long-term US breakeven rates have closely mirrored the Federal Reserve's inflation target of 2%, maintaining a 25-year average of 2.05%. This long-term alignment has served as a benchmark for inflation expectations and a guide for monetary policy. However, the aftermath of the pandemic has ushered in an era of elevated breakeven rates, with the 10-year US Breakeven rate averaging 2.33% since September 2020. This elevation signals market anticipations of persistently higher inflation over the next decade, influenced by factors such as deglobalization trends, sustained supply chain challenges, and increased commodity prices, notably oil. The correlation between rising oil prices and the uptick in US Long Term breakeven rates is stark, highlighting how energy costs can act as a bellwether for inflation expectations. The accompanying chart illustrates this relationship, with oil prices' sharp rebound since December propelling breakeven rates upwards, suggesting a potential for continued increases. This resurgence in oil prices coincides with a broader recovery in global economic activity, posing significant considerations for the Federal Reserve's approach to monetary policy. The crucial question now is whether the Fed will adjust its easing policy plan in response to these inflationary signals. Source: Bloomberg


This marketing document has been issued by Bank Syz Ltd. It is not intended for distribution to, publication, provision or use by individuals or legal entities that are citizens of or reside in a state, country or jurisdiction in which applicable laws and regulations prohibit its distribution, publication, provision or use. It is not directed to any person or entity to whom it would be illegal to send such marketing material. This document is intended for informational purposes only and should not be construed as an offer, solicitation or recommendation for the subscription, purchase, sale or safekeeping of any security or financial instrument or for the engagement in any other transaction, as the provision of any investment advice or service, or as a contractual document. Nothing in this document constitutes an investment, legal, tax or accounting advice or a representation that any investment or strategy is suitable or appropriate for an investor's particular and individual circumstances, nor does it constitute a personalized investment advice for any investor. This document reflects the information, opinions and comments of Bank Syz Ltd. as of the date of its publication, which are subject to change without notice. The opinions and comments of the authors in this document reflect their current views and may not coincide with those of other Syz Group entities or third parties, which may have reached different conclusions. The market valuations, terms and calculations contained herein are estimates only. The information provided comes from sources deemed reliable, but Bank Syz Ltd. does not guarantee its completeness, accuracy, reliability and actuality. Past performance gives no indication of nor guarantees current or future results. Bank Syz Ltd. accepts no liability for any loss arising from the use of this document.

Read More

Straight from the Desk

Syz the moment

Live feeds, charts, breaking stories, all day long.

Thinking out loud

Sign up for our weekly email highlighting the most popular posts.

Follow us

Thinking out loud

Investing with intelligence

Our latest research, commentary and market outlooks