10-Year US Treasury yields are down about 30bps so far this year, continuing the trend of lower rates that began in the fall of 2018 and confounding investor expectations for rising rates which would validate a turn up in economic activity.

The primary driver of the decline in rates is the term premium. With oil prices falling, the inflation risk component of the term premium, which is highly correlated with oil, has fallen by about 15bps. Our models using petroleum inventories suggest the inflation risk premium should be around -40bps.