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10Y Yield is Pricing in Lower Copper Prices

  • Since the start of the year, China 10Y yield has been constantly reaching lower highs despite the surge in inflation.
  • We saw that China PPI inflation, which have co-moved strongly with China LT bond yields, surged to its highest level since June 1995 (up 13.5% YoY).
  • The chart below shows that China 10Y yield is currently pricing in lower copper prices.
  • The two times series, which have co-moved strongly in the past cycle, have been diverging significantly this year.
  • Hence, the constant deceleration in the economic activity combined with the contraction in Chinese liquidity limit the upside gain on China-sensitive commodities such as copper.

Source: Bloomberg/MNI

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