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30-year YIELD closes near support

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The longer-dated 30-year Treasury YIELD ($TYX.X) hasn't been acting like an equity bull wanted as investors have scrambled rather aggressively back into Treasuries, despite yesterday's generous 50-basis point rate cut. The rather aggressive buying in the 30-year, which is the "riskiest" Treasury hints that market participants hunger for some type of instrument that provides safety, yet offers an attractive YIELD relative to lower rates the market finds on further rate cuts.

30-year YIELD Chart - Daily Interval

Both the SPX and 30-year YIELD broke ABOVE their 50-day SMA's on October 15th. The recent bullishness in Treasuries have YIELD falling as money rotates toward the safety of Treasuries. This leaves stocks vulnerable near-term. Should the longer-dated 30- year proceed lower, that market response as it relates to risk/reward versus equities could have the S&P 500 Index (SPX.X) 903.79 -2.16% vulnerable to its 50-day

Bond bulls were also aggressive buyers in the shorter-date maturities today with the 5-year YIELD ($FVX.X) falling to 2.865%. In late October, this bond's yield jumped from a low of 2.6% to as high as 3.245%. However, as economic data streamed in that showed a slowing economy, bond bulls have been buying up this "safer" Treasury despite its multi-year low yield.

One reason cited by economists for the rather bullish rally in bonds and falloff in equities today is that some question yesterday's 50-basis point rate cut, when the Fed explained that one of the main reasons for flat economic picture was due to "geopolitical" risks. Economists question that there is nothing really new regarding geopolitical risks, and that the Fed may not be telling a full story on just why they were so aggressive with a 50-basis point cut. Implying that the Fed may know something it just doesn't want to say at this point regarding the true economic backdrop.

Jeff Bailey

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