How To Trade Oil Futures -> Analyze U.S. Treasury Real Yields and WTI Oil Prices

I believe the recent oil price surge have investors wondering whether will this rally continue, I am more interested to see how would oil prices surge be related to U.S. Treasury Real Yields, but before that I think we would need to understand U.S. Treasury Real Yields and Oil WTI prices.

In this article, I will be delving into the dynamics of the relationship or connection between U.S. Treasury real yields and oil WTI (West Texas Intermediate) prices, exploring the factors that contribute to its complexity and the potential implications it has on the broader financial landscape.

This connection between U.S. Treasury real yields and oil WTI (West Texas Intermediate) prices is particularly intriguing.

To comprehend the relationship between U.S. Treasury real yields and oil WTI prices, it's crucial to first understand what these terms mean individually.

U.S. Treasury securities are considered some of the safest investments globally. Real yields represent the return on these securities after accounting for inflation. Investors often turn to these bonds as a benchmark for risk-free returns and a gauge of market sentiment regarding inflation expectations.

West Texas Intermediate (WTI) is a key benchmark for crude oil prices in the United States. It serves as a crucial indicator of the global energy market, influencing everything from gasoline prices to industrial production costs.

The relationship between U.S. Treasury real yields and oil WTI prices is complex and multifaceted.

It can be influenced by a multitude of factors, and understanding its nuances requires considering both supply and demand dynamics, as well as broader economic trends:

One of the primary drivers of this relationship is inflation expectations. When investors anticipate rising inflation, they may demand higher yields on U.S. Treasury securities to protect their purchasing power.

As oil prices are often sensitive to changes in inflation, a strong correlation can emerge between real yields and oil WTI prices during periods of inflationary pressure.

Economic growth plays a crucial role in this relationship. Strong economic growth can lead to higher oil demand, driving up prices.

Simultaneously, it can also lead to expectations of tighter monetary policy, potentially pushing real yields higher as central banks aim to curb inflation. Conversely, economic slowdowns can have the opposite effect.

Geopolitical events, such as conflicts in major oil-producing regions or disruptions in the supply chain, can exert immediate and substantial impacts on oil prices.

These events can sometimes overshadow the influence of real yields on oil prices temporarily.

Financial markets are influenced by sentiment and speculation. Traders and investors often react to news and events, sometimes exaggerating the relationship between real yields and oil prices in the short term.

The policies of central banks, particularly the U.S. Federal Reserve, can significantly affect both real yields and oil prices.

Changes in interest rates and monetary policy decisions can have ripple effects throughout the financial and commodity markets.

If we look at the period after 2020, it look like WTI price and 10Yr TIPS yield share similar trend. It is worthwhile to monitor how U.S. treasury yield would be performing.

But we need to be aware of the other factors which would affect how treasury yield could be moving, it might move in opposite direction as how WTI price moves.

I will be sharing some ETFs which we can look at. You may look at it in the Summary section.

The relationship between U.S. Treasury real yields and oil WTI prices is a complex interplay of economic, financial, and geopolitical factors. Investors, policymakers, and economists closely monitor these interactions due to their potential implications for the broader economy.

When real yields rise due to inflation concerns, it can put downward pressure on oil prices, as higher interest rates may slow economic growth and reduce demand for energy.

Conversely, when real yields fall due to accommodative central bank policies, it can lead to higher oil prices as investors seek assets with better returns than low-yielding bonds.

While there is indeed a relationship between U.S. Treasury real yields and oil WTI prices, it is not a simple or linear one.

Multiple factors converge to influence both markets, making it essential for market participants to maintain a holistic view of the global economy and financial landscape to make informed decisions.

As the world continues to evolve, this complex relationship will undoubtedly remain a topic of fascination and ongoing study for years to come.

We can consider to look at these ETFs, I have come up with a simple table to help to make informed decision on which on to look at.

I will select these 3 ETFs because of their lower expense ratio and YTD growth.

Appreciate if you could share your thoughts in the comment section whether you think it is a good time to look at crude Oil ETFs?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.