The CRB Index/Bond Ratio
by John J. Murphy
Veteran technician John J. Murphy, whose trailblazing work on technical analysis and intermarket
analysis are classics of the field, has delved into how bonds and commodities are interrelated and then
how bonds and stocks influence each other. Now, he introduces the C RB index/bond ratio as another
example of how these three market sectors interact, allowing us to determine the relative strength
between bonds and commodities.
In my last two articles, I examined first the inverse relationship between the Commodity Research
Bureau (CRB) Index and bond prices and then the tendency for bond prices to act as a leading indicator
for the stock market. Another way to combine these three sectors is to compare the CRB Index/Treasury
bond ratio to equities. The CRB Index/bond ratio simply divides the CRB Index by Treasury bond futures
When the ratio is rising, commodity prices are outperforming the bond market and inflation pressures are
rising. When the ratio is falling, bond prices are outperforming commodity prices and inflation pressures
are falling. From an asset allocation standpoint, a rising ratio line also suggests that commodities should
be emphasized over bonds. When the ratio is falling, bonds are favored over commodities.