In the last three trading sessions, yields on the 10-yr Treasury note have plunged from over 4.7% to 4.5%. At the same time, the Yen has soared from 8550 to 8700. Meanwhile, the S&P 500 Index has fallen about 2%, from 1575 to 1545.
Readers will recognize the risk aversion themes and high intercorrelation among markets that we saw during August. Note also the resumed weakness in financial shares over that time, with $BKX down over 4%.
Are traders and investors buying risky assets or fleeing them? That has been the key sentiment question for short-term traders. When money flows into Treasury notes and out of financial stocks, large traders and investors, it would seem, are playing for safety. That's an indicator worth following.
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2 comments:
IMO, it's actually the opposite. The speculation on interest rate adjustment is a great way to get movement in the stock market. Is 4.5% on the 10yr a good buy or sell. You see volume, what is that volume,,,people buying and thinking the yield is going lower with bond prices going up with a prediction of a rate cut? Does one economic report change the probability of a cut or raise in interest rates that much? What has happened since the last announcement? Anything? Last week we had just the opposite sentiment. The yield was at 4.7% and we still had another 3 weeks to go before the rate decision,
did you expect the yield to go as high as 5% this far out from the rate decision?
I tell you the media is confusing a lot of traders right now.
Maybe I'm the one confused, but lets look at the hard facts here of where interest rates should be and where we would expect them to move to before an announcement is made, regardless of whatever economic report comes out between now and then.
If rates stay the same what happens?
If rates are cut what happens?
If rates are raised what happens?
Who is affected in each case and who isn't? (that is the question)
Does the Chinese stock market care about our interest rates in the US, what has been the correlation in the past? And even if rates are cut again, would you expect homebuilders to start outperforming other sectors like the emerging markets?
Hello High Prob,
Great ideas; thanks. Looking at how various sectors would be affected by various interest rate scenarios strikes me as quite promising--
Brett
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