Treasury Yields Slip As Stocks Stutter In Choppy Trading — BOND REPORT

Treasury Yields Slip As Stocks Stutter In Choppy Trading — BOND REPORT

Treasury Yields Slip As Stocks Stutter In Choppy Trading — BOND REPORT

In the United States, recent economic data, including Friday's wage growth and inflation, has been positive.

The Trump administration's de facto weak dollar policy may be exacerbating market volatility.

The selloff in world stock indexes deepened on Thursday, with the fall in US stocks confirming a correction for the market, in another volatile session stirred by concern over rising bond yields. Here are some thoughts on why that can be bad for equities. While stock investors may be just waking up the fact that bond yields have climbed, the increases have been occurring over the last four months, he notes.

While not everyone is in love with the comparison, many investors feel safe when that number is comfortably above Treasury rates - which it is, by about 1.5 percentage points.

That was the reason why bonds yields had soared in many European economies such as Italy and Greece during the debt crisis a few years ago.

The average yield on the 10-year Treasury note over the past 30 years is 4.834 percent, still well above current levels. Consider this: The S&P 500 has risen or fallen 1% five times in the past two weeks. The leak of a Federal Bureau of Investigation memo on Trump's Russian Federation "dossier" complied by a British ex-MI6 intelligence officer has also unnerved stock market bulls about rising political risk in Washington.

Again, the comparison, a version of something known as the Fed model, isn't unanimously embraced by professionals. They also present an alternative to investors who may reallocate some funds to bonds from equities.

"The simplest way to look at it is, everything is relative". Gold was down only 1.6% this week, outperforming most assets.

A related concept is net present value. They got a lot of steroids of liquidity and low interest rates and refinancing, whereby US Fed picked up every junk subprime loan in the market.

Thursday's sharp sell-off in stocks, with the closing down 3.8 percent, reversed a sharp move higher in bond yields, as buyers sought safety.

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Stronger-than-expected wage growth data for January last week stoked inflation expectations, underlining worries the Federal Reserve would prove more aggressive than anticipated in lifting interest rates.

"Today it feels like leadership is going back to the rate market and now stocks are reacting to it", said John Briggs, head of strategy at NatWest Markets. "The links are always tenuous and squishy at best".

3-year -10 bps @ 2.223%. The yield started the year at about 2.43 percent.

"10-year Treasury yields will remain under 3% by the end of the year, which is a good environment for equity markets".

But there's a point where the "signal" leaves the abstract and becomes a drag on earnings.

Oil sank as record-high USA crude output added to concerns about a sharp rise in global supplies.

Monday's historic slump in USA stocks had something to do with this. The S&P 500 and Nasdaq were also firmly in the red. But they're going up now at a time when anxiety about the monetary policy is obviously on the rise.

Critics of the Fed's policies say the central bank not only has created repeated asset bubbles, but also has encouraged borrowers, especially the US government, to sap their spending power by going deeper and deeper into debt.

If equities are offering a yield of 4.07 per cent and 10-year bond 7.56 per cent, one would understand why money is moving away from equities. In this case, it is the difference between returns offered by equity and that by bonds. The Fed is raising short-term interest rates and reducing its large holdings of bonds. Buying a house gets more expensive, credit cards bite harder, consumer confidence takes a hit.

"Stocks look like they are set for a correction of some sorts after huge losses over the last few sessions that has left many bulls anxious that the bull run may have come to an end", said AxiTrader analyst James Hughes. So, what asset classes are worth investing in right now? The firm manages US$179 billion. "There's both a market valuation explanation and a fundamental economics mechanism".

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