America’s shale boom is providing an unintended benefit to U.S. government bonds.
With the U.S. economy relying less on oil and gas imports than at any time in two decades, energy expenses for Americans have fallen and cut into inflation more than any other living cost in the past year, according to data compiled by the Labor Department. Economists say consumer prices will rise less than 2 percent for a second straight year in 2014, the first time that’s happened during an expansion in a half-century.
Slowing inflation, which increases the purchasing power of fixed-rate payments, would give support to Treasuries after the Federal Reserve’s plan to curtail its unprecedented bond buying ignited their first annual losses since 2009. Ten-year notes yielded 1.76 percent last month after deducting inflation, close to the highest since 2011. Spending fewer dollars on foreign oil also means that any gain in crude prices no longer leads to a weaker greenback, upending a decade-long relationship that may strengthen the value of U.S. assets.
The incredible fracking boom currently underway in America has already shown so many positive benefits. This is just one more. No doubt there will be many more in the future!