Febrero 21, 2018

Wall Street sinks again as bond yields rise

09 Febrero 2018, 05:09 | Dolorita Barahona

Ignore the stock market rollercoaster, the sell-off in bonds is what matters

For bond traders, angst grows that this market dip is different

"Given how bullish the market has been positioning, there could be a reasonable period of adjustment", Mr. Cui said, referring to Chinese stocks.

The Dow closed up on Tuesday, European stocks lifted on Wednesday and Asian markets ended higher on Thursday.

Treasury yields moved higher on the day.

On Wednesday, U.S. congressional leaders arrived at a two-year budget deal, in order to raise spending on military and domestic areas by close to $300 billion.

Boeing was down 3 percent and Home Depot fell 3.2 percent, weighing the most on the Dow, while JPMorgan was among the top drags on the S&P. The since February 2016.

Managers have cautioned the sell-off in both bond and equity markets has further to run, pointing to the impact of the withdrawal of central bank stimulus and even a potential stagflationary environment developing.

On Thursday, world stock markets remained unstable as US bond yields rose near four-year highs following congressional leaders agreeing on a two-year budget deal that will raise government spending by almost $300 billion. The index is down just below 30 on Thursday, but that is more than twice the levels seen in the past few months.

"I don't think markets can recover immediately (from the shock), there needs to be a stabilization phase". It's been pretty ugly. Non-farm payrolls data released by US Labor Department data on Friday showed that it rose to 200,000 in Jan, more than the average estimate of economists.

Yields in the belly of the curve are down about 10 basis points.

For bond traders, angst grows that this market dip is different
381-point Dow surge disappears as bond jitters return

"If 2.88 scared people why would they be comfortable with 2.84/2.85", said Schumacher. The job market remains healthy, as evidenced by a report Thursday that applications for unemployment benefits are at a 45-year low.

Analysts at Mizuho point out that the two-year Treasury yield is now higher than the S&P 500's forward dividend yield, which prompts a "psychological test" for investors. Now if you reverse PE (i.e. 1/24.53 or 4.07 per cent), you get what is called the earnings yield. He expects a sharp and swift correction but does not see the stock market heading into a bear market, which would be a 20 percent decline.

After rising sharply last week, U.S. Treasury yields fell from four-year highs on Monday as the selloff in equity markets sparked demand for low risk debt.

"The dust hasn't settled yet, and I think both buyers and sellers are trying to figure out what this market really wants to do", said Jonathan Corpina, senior managing partner for Meridian Equity Partners in NY.

The quick and sudden rise in Treasury yields last week came amid concern rising inflation expectations would force the Federal Reserve to speed up interest rate hikes.

William Dudley, the president of the Federal Reserve Bank of NY, said separately at a forum in Manhattan that he expected the turbulence to have virtually no outcome for the economic outlook, although further deep declines could start to change the prognosis. That compares with $420 billion net a year ago in notes and bonds.

Overseas market jitters mostly eased after plunging earlier this week.

"When yields move up there is an unsettling feeling in the equity market", said Jason Ware, chief investment officer at Albion Financial Group in Salt Lake City, Utah. USA bond yields rose sharply on Monday after official data released on Friday showed United States wages were increasing at the fastest pace since 2009.

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