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MBS Day Ahead: Should we Care About Rising Oil Prices

Posted To: MBS Commentary

Oil is one of the most fundamental economic inputs when it comes to determining costs and thus inflation. Inflation is one of the most fundamental inputs when it comes to determining the price of bonds. It certainly stands to reason that big moves in oil could translate to at least some movement in the bond market. While that is indeed true in many cases, there is often a lag time for the correlation to play out. Beyond that, both oil and bonds frequently have other things to worry about. Sometimes those things have similar effects on the two markets, but other times, only one of the two is majorly affected. The red highlighted areas show notable instances of oil and bonds moving on completely different agendas. When we bring in indicators like the value of the dollar and China/US stock indices...(read more)