Hard for yields to ignore oil shortage + wealth effect
May 10, 2026 – weekly comment
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Jeff Currie of Carlyle: What happens when you run out of inventories?…Oil is the same thing. From a price perspective and a share of GDP it doesn’t matter, but you pull it out of the system, it matters. …I like to emphasize, that volumes matter. We in commodities, how do we quote things? We say millions of barrels per day or millions of metric tonnes or millions of bushels per day. We don’t quote in notional. Macro people quote in dollars. Financial people quote in dollars. And that is a very important distinction. I remember it was very similar during COVID. We were going, “you guys, you have a problem and it’s coming your direction.” Every commodity guy said “you’ve got a big problem”. Every macro guy, every finance guy, said no, no, no. Boom! inflation’s up over 10% year over year. It’s because they do not respect the idea of volume metric change.
From Doug Noland Credit Bubble Bulletin:
One of my favorite economic indicators, the ISM Services Index, slipped marginally in April to a still robust 53.6, with 14 industries reporting expansion versus only three in contraction. The ISM Services Prices Paid component was unchanged at 70.7, matching the high back to October 2022.
At 3.64%, New York Fed Inflation Expectations was reported at the highest level since September 2023. Surely boosted by high gas prices, Consumer Credit popped in April to $24.9 billion (est. $13.7bn), the strongest gain since November 2022. Also stronger-than-expected: March Factory Orders (up 1.5% vs. 0.6% forecast) and March New Home Sales (682k vs. 652k).
I would add that NFP was stronger than expected 115k with the unemp rate steady at 4.3%. Solid data, inflationary pressure.
CPI is released Tuesday, expected +0.6 m/m and 3.7% yoy (from 3.3 last). Core yoy expected 2.7 from 2.6. In mid-April 2025, front WTI (CL) contract was around $65. By mid-April of this year it was around 90, up about 38% (range in April 113 to 84). While many CEOs bemoan the lack of final consumer demand, the general price level is heavily influenced by energy.
The rates market has clearly focused more on the negative effects of inflation rather than a slow-down in growth. Not much change this week in rates: 10y -1.2 bps to 4.365%. 2y +0.4 to 3.89%. SFRM7 (one-year forward SOFR) settled 9626, down 0.5 on the week. However, since Feb 27, the start of the Iran attack, 2y yield + 51 bps, 10y + 42.5 bps and SFRM7 +80 bps (in yield).
With regards to employment, it seems that gov’t payrolls (includes state and local) have been declining. I created a chart (which I believe to be an accurate measurement) of govt payrolls / private payrolls as a ratio. Current level is 17.2%, near an all-time low. Looking at the long-term chart, it reminded me of long-term US yields, so I added the 10y yield. Quite similar, except the employment ratio is still moving lower while yields have obviously popped. My original view of Trump 2 was that government payrolls would decline, in a hopefully smooth transition to an increase in private payrolls. While that might have occurred to some extent, gov’t deficit spending is rampant, which is more of an explanation for the rate increase.
The obvious focus of markets has been chips. SOX index up 65% since the end of March! SMH up 55%. Sandisk is up from 237 at the end of the year to a new high 1562 on Friday!
Here are eight selected stocks (in SOX) with prices at end of March and current (JUST 1.5 months later) and current market caps:
SNDK 522 1562 $231B (up 3x)
INTC 41 124 $628B (up 3x)
WDC 251 480 $165B
MU 322 746 $842B
AMD 200 455 $742B
QCOM 129 219 $231B
AVGO 300 430 $2,0T
AMAT 323 435 $345B
Just these eight companies have added $2.33 trillion in market cap in a month and a half.
By way of comparison, in the dot com bubble, from Oct 1998 to late Jan 1999 (~4 months) Nasdaq 100 (NDX) nearly doubled from 1129 to 2127. Then, from October 1999 to March 2000 (the top) it doubled again, from 2362 to 4704. The current NDX move from late March 22953 to 29234 (27%) currently seems almost tame, although the change in market cap is a whopping > $9 trillion.
Given numbers of this magnitude, the gov’t auctions this week seem almost small: $58b 3y on Monday, $42b 10y on Tuesday, $25b 30y on Wednesday.
Worth noting is that in June 1999, CPI was 2%. It had been 1.5 to 1.7% in the last half of 1998. By March of 2000, the ‘wealth effect’ had kicked in and CPI was 3.8%. It stayed between 3.8 and 3.1 for a year. The US 10y yield was 4.4% in September 1998, about where it is now. By the end of 1999 it was 6.4%, up 200 bps. TY futures below par? Last time that happened was in 2000.
| 5/1/2026 | 5/8/2026 | chg | ||
| UST 2Y | 388.6 | 389.0 | 0.4 | |
| UST 5Y | 402.0 | 401.3 | -0.7 | |
| UST 10Y | 437.7 | 436.5 | -1.2 | wi 437.4 |
| UST 30Y | 496.5 | 494.7 | -1.8 | wi 494.5 |
| GERM 2Y | 264.0 | 259.4 | -4.6 | |
| GERM 10Y | 303.5 | 300.4 | -3.1 | |
| JPN 20Y | 337.4 | 335.1 | -2.3 | |
| CHINA 10Y | 174.8 | 175.9 | 1.1 | |
| SOFR M6/M7 | 8.0 | 10.0 | 2.0 | |
| SOFR M7/M8 | -16.0 | -12.5 | 3.5 | |
| SOFR M8/M9 | 9.5 | 7.0 | -2.5 | |
| EUR | 117.21 | 117.87 | 0.66 | |
| CRUDE (CLM6) | 101.94 | 95.42 | -6.52 | |
| SPX | 7230.12 | 7398.93 | 168.81 | 2.3% |
| VIX | 16.99 | 17.19 | 0.20 | |
| MOVE | 70.41 | 67.25 | -3.16 | |
