###POV: KEEPING IT REAL: The move lower.....>

US TSYS: ###POV: KEEPING IT REAL: The move lower in 10-Yr yields since the

beginning of October has been due entirely to a fall in inflation breakevens.

- Charts here: https://tinyurl.com/MNI-BE

- Oct 3rd is a key date: it saw both FOMC Chair Powell say we are a 'long way'

from neutral rates (which some have even blamed for the equity collapse), and,

crucially, a 4-year high in oil prices which has been followed by a crash.

- Since then, WTI is down 32%, S&P 500 9.4%. Meanwhile, 10-Yr real yields are up

(1.012% to 1.060%), but inflation breakevens are way down (2.166% to 1.989%).

- The latter is due largely to lower oil, which maintains its long-standing,

strong positive correlation with breakeven inflation.

- If breakevens had remained constant, 10-Yr yields (based on real yields +

breakeven) would be 3.23% rather than 3.05% currently (see chart).

- That is a big `if` of course, but the resilience of real yields has occurred

in the face of equity weakness. Indeed, they hit 7-year highs on Nov 7th.

- This points to continued positive growth expectations despite equity weakness.

- While oil still looks weak, a bounce could see UST yields rise sharply.