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Bonds Did Not Buy Rally In Copper

Jul. 06, 2020 10:48 AM ETCopper Futures (HG1:COM)
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Seeking Alpha Analyst Since 2017

A global macro enthusiast who experimentally ventured into the world of investing around mid-2015. On the micro side, my investment interests include crude oil, commercial aviation, sugar, gold. For now, I only invest in Indian debt and equity markets.


  • Divergence in bonds and copper back in 2008.
  • Similar divergence observed today in 2020.
  • Bond price action indicating all in not good.

Analysts and observers in FinTwit are curious about the recent divergence between Copper and US 10Y treasury yields. Both these asset classes are barometers of global economic sentiment. Though to be fair, Copper is more of an indicator of the Chinese economy specifically, but that aside.

Divergence in bonds and copper back in 2008

Between Dec 2008 (when both Copper and US 10Y treasury yields bottomed) and Feb 2011, Copper had ripped up ~4x (4 times!) while the 10Y yields had started to consolidate and move sideways by June 2009 (6 months after bottoming out). So while Copper kept going up for another year and half, the bond yields had started to roll over by early 2010. The bond market, back then, never confirmed the copper reflation rally!

Source : TradingView

Similar divergence observed recently in 2020

Copper has rallied from 1.97 to 2.77 (as of 6th Jul 2020) while the bond yields are still consolidating and not going anywhere. 

The rise in copper can be explained due to shortages arising out the pandemic disruption in copper producing countries in South America (like Chile) and due to reopening and industrial recovery in China coming off a major low. Warehouse stocks have been coming down tracked by the ShFE (Shanghai Futures Exchange) and the spot TCs/RCs (miners pay smelters to convert copper concentrate into refined metal) coming down is another indicator for tighter supplies. All in all, idiosyncratic factors seem to dominate the copper market for now.

Bond price action indicating all in not good

The bond market, as expected, is sending an opposite signal not indicating any reflationary/inflationary recovery, as major parts of the world are still grappling with lockdowns and resurgence of virus dampening the 're-opening' stage. I would be cautious to view the copper rally as a confirmed indicator for a positive recovery globally. 

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