Trading with Intermarket Analysis

CHAPTER 15

The Link between Bonds and Commodities

This chapter explores the link between the bond and commodity markets. Bond and commodity prices normally trend in opposite directions. The 30-year bull market in bonds started shortly after the 1980 peak in commodity prices. Copper is the commodity most closely linked to bond prices and yields. You’ll find out what comprises the Thomson Reuters/Jefferies CRB Index. The CRB/Treasury bond ratio helps determine which of the two markets is stronger. That ratio also has an influence on stock market direction, sector rotations, and the direction of emerging markets. Conflicting trends in two Asian giants may help explain how commodity inflation has coexisted with bond deflation

■ One of the Traditional Relationships

The previous three chapters examined the inverse link between commodity prices and the dollar, the positive link between stock and commodity prices, and the inverse link between bond and stock prices. This chapter will deal with the last of the intermarket links, which is the relationship between bonds and commodities. This is one of the simplest of the traditional intermarket relationships. Over the last decade, however, deflationary tendencies have dampened the normal relationship between the two markets somewhat. Since 2002, commodity inflation has coexisted with interest rate deflation, which is somewhat unusual. Some ideas have already been offered in previous chapters as to why that happened, one having to do with the ...