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10-year YIELD falls to multi-year low

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Bond bulls continue to gobble up longer-term bonds and drive YIELD lower as the 10-year YIELD ($TNX.X) falls below the October 1998 low YIELD of 4.101%. Yesterday's announcement that the Treasury Department will suspend future offerings of 30-year bonds as turned Treasury bonds into a commodity that market participants perceive as having limited supply.

10-year YIELD Chart - weekly interval

The sharp decline this week in the 10-year YIELD has come in the past two sessions. In October of 1998, when the 10-year YIELD fell to its low of 4.101%, the S&P 500 traded a low of 923 that week. Today at similar YIELD levels, we find the S&P 500 has recovered from a decline of 944 in mid-September and now trades at the 1,071 level. This correlation leaves me wondering where the S&P 500 is getting the needed cash to prop stock prices up. Either bears are aggressive in their short covering or cash moving in off the sidelines that we're unable to track. It certainly isn't coming from the bond market.

13-week YIELD Chart - weekly interval

The 13-week is more responsive to what market participants feel the Fed will be doing near-term. The action here tells us that many market participants expect the Fed to cut rates further. Next week, the Fed meets to determine interest rate policy (different that what bond YIELDS trade). Currently, Fed Funds stand at 2.5%, while many economists predict the Fed will lower that rate next week to 2.25% or 25-basis points.

Today's lower NAPM reading of 38.9, which was well below September's reading of 47, gives the Fed plenty of reason to cut rates further. So far, the Fed's easing has yet to stimulate economic growth.

Little change in past two hours

Stocks have shown little change in the past two hours of trading. After an early morning dip at 10:00 am EST when today's NAPM numbers were released, stocks rebounded from session lows, but have been stuck near the high end of their intra-session trading range.

The Semiconductor Index (SOX.X) leads sector gainers with a 4.18% gain at 466, but have been battling with a falling 50-day moving average at 465 for the past two hours. Pacing the gains for the sector are shares of AMD (+5.69%), ALTR (+4.4%), XLNX (+6.31%), TER (+6.3%), KLAC (+6.6%), NVLS (5.4%) and KLIC (+11.79%).

Jeff Bailey
Senior Market Technician
Option Investor

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