The US 10yr Yield is the Global Benchmark, Do Not Fear It

The US 10yr Yield is the Global Benchmark, Do Not Fear It

The US 10yr Yield is the Global Benchmark, Do Not Fear It

$DIA, $SPY, $QQQ, $VXX

Growth-sensitive groups like industrials, materials, and technology lead the broad retreat Tuesday

At the close: the DJIA -424 pts, or 1.7%, at 24,024, the S&P 500 -36 pts, or 1.3%, at 2,6234, and the NAS Comp -121 pts, or 1.7%, at 7007.

Rising US Treasury yields hurt stocks Tuesday, when you combine that with the weakness in the FAANG’s it made for a tough day in the market equities market.

Tuesday, the 10-yr US T-Note  finished at 2.995%

Recall that now the yield of the 10-yr US T-Note is well below its average yield since 1988 that is a  bit above 5%.

Tuesday, the US 10-yr Treasury yield rose to 3% for the 1st time in more than 4 years as investors reduce their US bond holdings on worries about rising inflation and growing government debt supply.

The 2-year yield in the meantime rose to 2.50% for the 1st time since September 2008 amid bets the Fed would raise short-term rates further due to an improving US economy, Reuters reported.

Keeping in mind that the US 10-yr T-Note yield rate is the global financial benchmark market rate that is used for example as a benchmark for US mortgage rates, but that besides that, sets the rate path of the corporate bonds as well as the emerging bond markets’ rates.

The 10-yr yield it is also a good indicator for where the federal-funds rates may convert to.

This month, the yield has risen on signs that US inflation is headed slowly higher while the Fed has clearly indicated the fed-fund rates could be raised another 3X in Y 2018.

Again, recall that now the yield of the 10-yr US T-Note is still well below its average yield since 1988 that is a  bit above 5%.

The financial markets will take into account where the core US inflation rate is headed.

For example

If the core US inflation rate marked 2.5%, which is about 0.5% higher than where we are now then the “neutral rate” would be rapidly adjusted upwards, which would also be performed for other macro variables.

This brings us to the Big Q: Is the United States a positive rate economy or not?

Notably, there is an important technical issue at play, as the unwinding of the QE (quantitative easing) policy of the Fed that is happening.

In the 3rd and 4th Quarter this year for the 1st time in about 7 years central banks will no longer be net buyers of government bonds as the QE is reversed, driven by the unwinding of the Fed’s balance sheet whereby it has effectively started to de-print Money, and that should continue in the coming 5 or more.

The Big A: US fundamentals are very robust. Consumer confidence is off the charts, the last labor report showed that jobs growth was 200,000 more than replacement while survey evidence points to that wage inflation is heading towards 3.5%.

So, the higher 10-yr US Treasury yields are very reasonable now, and nothing to be afraid of.

So, tune out the noise.

Tuesday, the 10-yr US T-Note  finished at 2.995%

Tuesday, the major US stock market indexes finished at: DJIA -424.56 at 24024.13, NAS Comp -121.25 at 7007.35, S&P 500 -35.73 at 2634.56

Volume: Trade on the NYSE came in at 861-M/shares exchanged

  • NAS Comp +1.5% YTD
  • Russell 2000+1.2% YTD
  • S&P 500 -1.5% YTD
  • DJIA -2.8% YTD

The HeffX-LTN Market Indexes Overall Technical Analysis

Date Symbol Price Technical Analysis Support Resistance
24 April 2018 QQQ 158.46 Bearish (-0.32) 156.59 158.64
24 April 2018 DIA 240.09 Bearish (-0.29) 238.32 245.14
24 April 2018 SPY 262.98 Bearish (-0.33) 259.11 267.11

Stay tuned…

 

 

 

The following two tabs change content below.

Paul Ebeling

Paul A. Ebeling, polymath, excels in diverse fields of knowledge. Pattern Recognition Analyst in Equities, Commodities and Foreign Exchange and author of “The Red Roadmaster’s Technical Report” on the US Major Market Indices™, a highly regarded, weekly financial market letter, he is also a philosopher, issuing insights on a wide range of subjects to a following of over 250,000 cohorts. An international audience of opinion makers, business leaders, and global organizations recognizes Ebeling as an expert.

You must be logged in to post comments :  
CONNECT WITH