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The 10 Year Note Yield and S&P 500 have been married since mid-March. In other words Treasury prices and equities have been in an inverse relationship since the rally in risk appetite commenced in March (treasuries -> equities). During the past month the combination of 0.25% rates, inflation expectations, green shoots, fiscal deficits and the questionable USD brought significant volatility into Treasuries. Check out the Merrill Lynch $MOVE index which measures implied volatility on 1-month Treasury options (SeekingAlpha). Treasury I-vol broke out of a long term downtrend and spiked in May. Also today's disappointing 10Y Treasury auction did not help. Watch to see if the 10Y Yield/S&P relationship decouples. If rates overshoot it could squeeze the already distressed consumer/business. At some point something has to give or the Gov has to intervene unless the black swan is a Q2 GDP spike driven by exports.
The 10 year yield directly affects mortgage rates and mortgage applications fell last week. Also oil is at $72 and gas is up 9% since Memorial Day. Would the market OD on green shoots if the Fed raised rates in November? (Debates: 1, 2, 3). Look at the Fed Fund futures curve.
The 10 year yield is at 4% resistance so watch that level. Could the $MOVE Index see spikes like the $VIX did in 2008?
The 10 Year Note Yield and S&P 500 have been married since mid-March. In other words Treasury prices and equities have been in an inverse relationship since the rally in risk appetite commenced in March (treasuries -> equities). During the past month the combination of 0.25% rates, inflation expectations, green shoots, fiscal deficits and the questionable USD brought significant volatility into Treasuries. Check out the Merrill Lynch $MOVE index which measures implied volatility on 1-month Treasury options (SeekingAlpha). Treasury I-vol broke out of a long term downtrend and spiked in May. Also today's disappointing 10Y Treasury auction did not help. Watch to see if the 10Y Yield/S&P relationship decouples. If rates overshoot it could squeeze the already distressed consumer/business. At some point something has to give or the Gov has to intervene unless the black swan is a Q2 GDP spike driven by exports.
The 10 year yield directly affects mortgage rates and mortgage applications fell last week. Also oil is at $72 and gas is up 9% since Memorial Day. Would the market OD on green shoots if the Fed raised rates in November? (Debates: 1, 2, 3). Look at the Fed Fund futures curve.
The 10 year yield is at 4% resistance so watch that level. Could the $MOVE Index see spikes like the $VIX did in 2008?
