We’ve seen bond yields really starting to rise sharply since bouncing off support back in the early part of February. They’ve basically gone vertical from about 3.3, and today we’re hitting four percent on the 10-year yield.
In fact, this downtrend line cracked just about two weeks ago. We came back down and tested that line and have been going up unimpeded all the way up towards four percent. We are pretty overbought here on the RSI, but there is a gap up here we can fill. Let’s call it about 4.1 to 4.13 on the 10-year yield.
So as yields are going up, bond prices are going down. The reason four-year yields are going up is because there’s a lot of inflation in the system and a lot of bond selling. We could have continued supply coming in as the Treasury sells more bonds.
There’s just not a good risk appetite for fixed income, and people are more likely to sell bonds or buy few bonds than there are available.
You can also trace out a W-pattern. We have a double bottom here at the 34 level or 3.4% from December. We got into February and bounced off of that and it’s continuing to play out. The top level here – 3% – came out here in October when markets were at their lows. And we can certainly make a run up there toward 3.4% especially if the Fed continues with their hawkish talk as they did this morning.
It’s not over for bond yields. If you want to continue to look for fixed income, you might want to wait a little bit more for the yields to climb before you shift money into them.
But let’s make no mistake, the bond yields are a huge competitor for equity returns. You have to ask yourself: If the six-month yield on Treasuries is selling at 5.1%, you can get a a six-month return of about 5.1 percent. Is that going to be better than stocks over the next six months? If the answer is yes, you’re going to see a lot more money flowing into bonds to capture that yield.
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