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Analyzing the 10-Year Treasury and MLP Yields Spread

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MLP and Treasury yield

Generally, MLP yields move in the same direction as Treasury yields in the long term. MLP yields trade at a spread over Treasuries. Investors expect a risk premium for the additional risk undertaken over risk-free Treasuries.

A decline in Treasury yields means cheaper capital availability in order for an MLP to fuel growth. The above graph compares MLP yields, represented by the Alerian MLP Infrastructure Index (AMZI), and ten-year Treasury yields over the last 20 years.

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Correlation with commodity prices

The above graph compares the movements in the Alerian MLP ETF (AMLP), the SPDR S&P Oil & Gas Exploration & Production ETF (XOP), West Texas Intermediate, and natural gas near-month futures prices. Currently, Energy Transfer Partners (ETP) is AMLP’s largest holding. It forms nearly 11.5% of AMLP.

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