Nominal yields rise and the curve drops today. Its message continues to be risk ‘ON’ with the relief bounce in markets.
Fear not my dear bulls, help is on the way in form of a moderating yield curve. Well, from this snapshot view at least. Indicators are flying around at warp speed and if you do not love this market (speaking as a geek) then you will never love any market.
10, 5 & 2 year yields are aligned up for the yield curve today with all maturities heading down nominally.
For a visual, here is a look at the longest end (30 year) to the shorter end (5 year). Interesting to say the least, as are so many markets right now.
A declining yield curve has been one of our main reasons to support the strong economy/strong stock market (and cautious gold’s price) stance for about 1.5 years now. So, what do you think the above means? Probably just a little blip? Yes, probably… but.
Checking in on the Continuum, we see that the ‘would-be’ support zone wasn’t… or at least isn’t yet. So much for the Great Rotation pumpers of the year ago time frame.
Today’s stock market bounce was fully anticipated. But it will be in the indicators (and the TA) that we confirm its nature going forward. A lot of those indicators take place in T bond land.
The 10-2 curve is rising slightly in a non-risk ‘off’ way. Hence, stocks have a little buoyancy in them.
Here is the state of the 10-2 as of yesterday’s close. Very sedate.
So I want to stress that while there are bearish things going on in some spreads in some bond markets, the spread between 10 and 2 year Treasury bonds is not one of them at this juncture.
The yield curve is spiking up today with nominal yields falling, but if it has anything to do with this new Ukraine stuff it is meaningless as a risk ‘off’ indicator. Anyway, here’s the view of the herds jumping into short-term Treasury instruments.
Here is the big picture view of 10’s vs. 2’s as of yesterday’s close. As you can see, it is burrowing southward on the big picture with its combined message of no inflation and no systemic risk… That’s what it says as of 11:00 Eastern US time on Wed. the 1st of October, anyway.
The tiny little bounce continues as the curve rises again today, with all maturities declining. A little risk off’y here.
May as well throw in a couple other indicators while we’re at it. TIP vs. TLT indicates that a little counter trend support could be setting for a bounce in precious metals, commodities, etc. Depending on what USD does with its over bought status. Junk bonds are weak but still showing a bullish hint vs. Treasury (and Investment Grade) bonds.
The yield curve rises today as nominal yields rise as well. Implication, when taking into account the TIP-TLT ratio in the previous post is that risk is still ‘ON’ (also see junk vs. T bond spread below) and that a new squall of market bullishness – if it materializes – can include a commodities/precious metals bounce. *
Here’s the HYG-TLT ratio.
This post brought to you by your friendly play-by-play callers at biiwii.com.
* Look guys, I realize that many precious metals and even commodity/inflation players are enthusiastic sorts, to say the least. So when someone speculates about something short-term bullish amid a growing pervasive bearishness please filter it with the other more moderating language in these posts and with the fact that intermediate picture technicals are bearish. Okay?
[edit; normal yield curve snapshot post goes on and on, gets a little weird] It may be silly to keep posting the daily Yield Curve moves, since it’s probably just a reflection of black boxes and whatever knee jerk they are programmed to do on a given day. Today the black boxes are risk ‘OFF’ing it as the curve rises.
Why, today we have the dreaded geopolitical tensions and rate hike fears as noted by a robot in the media. There is also a jobless claims number that was higher than expected, which you would think might counteract the rate hike fears, when taken along with the recent non-stellar jobs report.
Of course it’s all just rationalization to come up with a story every day about why the market is doing what it’s doing on that particular day. Here is some reasoning… markets are going up. Money is and has been pouring into them and it will continue to do so until something reverses that impulse.
The 10 vs. 2 yield curve, of which the above is a daily snapshot, has been dropping for like, forever. Or so it seems. That’s not a snapshot, it’s a trend and it has been good for the financial system and the stock market. All the while ZIRP has been maintained as much of the 2014 policy tightening furor has centered on QE’s removal. It’s all good for the market until the curve reverses trend.
Right now that trend is no systemic stress and no inflation. The Yield Curve says so! Meanwhile ZIIIRRRPPPP whirs along and the machine hums along.
Risk is still ‘ON’ by this measure, though you wouldn’t know it by looking at junk bonds or the stock market the last couple of days. But today the Yield Curve is dropping with yields rising… it’s a risk ‘ON’ signal. What can I say? It’s a snapshot.
Wax off, wax on… risk ‘OFF’, risk ‘ON’… the curve is dropping today in a risk ‘ON’ manner even though markets are down. Of note however, is that the HYG junk bond fund is losing a support level (@ the MA 50) today. It is also negative vs. TLT and LQD to put the cherry on top of a thoroughly confusing market. No really, it’s a because every day we breathe the air and are privileged enough to do this is a good day.
Anywhere, here are the yields doing their thing…