CRB/T-BOND RATIO HAS BEEN RISING -- BUT NOT ENOUGH TO REVERSE LONG-TERM DOWNTREND

CRB/T-BOND RATIO HAS BEEN RISING... It's been awhile since we looked at the ratio between the CRB Index and Treasury bond prices. Part of the reason is simply due to the fact that they've been diverging somewhat from their normal historical pattern. Historically, bond and commodity prices trend in opposite directions. For the past year, they've both been rising. Let's take a look anyway. The CRB/bond ratio has been rising for the past year. That simply means that commodity prices have been rising faster than bond prices. During that time span, commodity markets were a better trade than bonds. A rising ratio usually signals the onset of some inflation pressures. Chart 2, however, paints a different picture.

Chart 1

LONG-TERM TREND OF RATIO IS STILL DOWN... The 10-year trend of the CRB/bond ratio shows a continuing downtrend. Notice that the upturn of the last year is just now testing the major down trendline. That suggests that bonds still hold the upper hand over commodities. To signal a major change in trend, the ratio needs to break the decade-long down trendline -- and then exceed the peak formed in 2000. Our basic conclusion from this chart is that, despite the runup in commodity prices over the past year, longer-term deflationary pressures still haven't been eliminated.

Chart 2

SHORTER-TERM RATIO IS SLIPPING... On a short-term basis, the CRB/bond ratio is slipping. It broken its 50-day moving average line and has fallen to the lowest level in two months. The daily MACD lines have turned down. This suggests that some short-term money is flowing out of commodities and back to bonds.

Chart 3