If the decline in yields so far shakes the markets, stick to your hat.
In a healthy market where progress can be expected to be sustainable, traders invest in stocks when they see companies increase their profits. All things being equal, this is happening in a growing economy. Investors hold bonds when the economy slows down and interest rate prospects are lower.
Then how can stocks continue to see higher highs, even when investors continue to bring the cashier's returns to perennial lows?
Some say this time is different. Perhaps the causal link between stocks and bonds is broken.
Maybe. In a negative yield environment, in which Denmark offers a 20-year mortgage at zero interest, it is possible that the US yield ̵
There is probably no dispute between investors in stocks and bonds. Both increase demand for the prospects of a slowdown in the economy, but for different reasons. Bond investors are buying the Treasury now, before falling further, before the expected additional. Stock traders, on the other hand, are increasing their demand for stock amid speculation that the Fed will continue to feed the monster … at lower rates.
Of course, there have been quite brief periods where stocks and bonds have moved in unison before, such as during the heyday of the Trump trade. In the end, however, the market cannot function when investors are pulling it in two different directions.
So far, the bonds are beating stocks. Historically, bonds tend to settle since retail investors typically only buy shares, but institutions also invest in bonds. With that in mind, the first stage of the top of the stock market can often be found when smart money passes overpriced stocks to unsuspecting amateur investors.
Although the picture of supply and demand is not clear, signs of tuning to another
10-Y yield fell yesterday, breaking out of a four-day traffic jam. Trade is tilted up in the range, as is the rising banner within the slump. Our only reservation to this interpretation is that the flag rule is a minimum of five sessions. This one lasted four before the breakthrough.
However, a 20% collapse in just one week, followed by a range dominated by upward bias – rising flag flags – against a recurring inverted yield curve, makes us sufficiently confident in this interpretation.
The initial immersion of the pole flag occurs in the panic sale of an asset (or in this case, the purchase of government securities, pushes yields down). Consolidation takes place when the market catches up and takes time to evaluate whether this activity may have been a knee-jerk
The upward bias in the range indicates that demand for the asset is increasing in supply; but the failure of the flip side reveals that supply actually engulfed all demand and became even more panic-stricken as bids were lowered to find a new batch of willing buyers.
Whether the scheme is a bonafide flag or not, last Wednesday's hammer is supposed support, and Treasury buyers are still likely to lick their wounds after a very long shadow of yields sucks them off before bouncing to the right. back.
In any case, if yields fall below 1,559, the hammer is low, the probability is increased by another dip of 400 basis points, repeating the previous stroke, the pillar of the flag. This scenario is in line with emerging bearish flags for US indices whose breakthroughs in a downward direction would lead to the weight of evidence of a long-term peak after January 2018, discussed.