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

US Treasury bond yields spike and the Dow Jones mini-crash

The bond market is ready to turn up the heat even more on the stock market. Or, are we simply returning to a more "normal" cycle of higher yields and higher interest rates?

Yields move in the opposite direction of debt prices.

The 10-year notes last rose 38/32 in price to yield 2.7093 percent, down from 2.852 percent late on Friday. As of Monday morning, the BSE Sensex is off almost 1,700 points from its all-time high of 36,443, while midcap stocks were bleeding even more.

While the deal was a rare display of bipartisanship that should stave off a government shutdown, it looks set to widen the U.

We think structural global sources of demand for yield, including de-risking pensions, will effectively cap the rise in bond yields and we would be surprised to see the United States 10 year Treasury rise much beyond 3% by the end of 2018. Jobless claims are released Thursday morning at 8:30 a.m. ET, but there's no major data until CPI and retail sales data next Wednesday. It's been pretty ugly.

Federal Reserve Bank of Dallas President Robert Kaplan said in an interview with Bloomberg Television on Thursday that more volatility in equity markets will have little impact on the broader economy, suggesting an important shift in the outlook for interest rates.

Straightforwardly, rising 10-year rates are a bullish signal for the economy: demand for money is rising, businesses want to put it to use. "Now they are saying we will take out the steroids, because it could have side-effects", said Nilesh Shah, MD at Kotak AMC. A selloff in US stocks earlier this week was in large part sparked by the February 2 monthly USA employment report which showed the largest year-on-year increase in average hourly earnings since June 2009.

"Stocks look like they are set for a correction of some sorts after huge losses over the last few sessions that has left many bulls anxious that the bull run may have come to an end", said AxiTrader analyst James Hughes.

"What we're seeing today is continued concerns around interest rates going higher, around valuations in the stock market", said Chris Zaccarelli, chief investment officer with Independent Advisor Alliance in Charlotte, North Carolina.




The stock market is still up dramatically since President Trump's election.

The Fed planned on raising interest rates slowly this year - just three times in 2018. At the same time, the US deficit is growing and would be bumped up even more by the Senate budget deal, if it passes Congress.

"I would not be at all surprised if bond yields get beyond 3% by the end of the year as a result of inflation". It has raised the benchmark fed funds rate five times since December 2015, to a range between 1.25%-1.5%, having left them at zero for seven years.

Still, this concept is usually in the background when people wonder about the staying power of a bull market, one that has gone for nearly nine years with nary a peep out of Treasuries.

Equity investors are anxious the likelihood of a stronger US economy and higher inflation could lead the Federal Reserve to boost interest rates more times than previously anticipated.

"The cause of this correction is the ostensibly withdrawal of liquidity by central bankers, and consequently rising interest rates". The ECB [European Central Bank] cut their quantitative easing in half.

The yield on the benchmark 10-year Treasury bond was up Thursday to 2.83 percent, near a four-year high.

Wall Street is clearly trying to figure out whether this is the big one as the Fed gradually pushes official borrowing costs higher. "When that ball bounces out, it's going to spike", said Boockvar. "And the Fed being there with training wheels in case the market gets wobbly has been expected".

Philadelphia Fed President Patrick Harker speaks at 8 a.m. ET in NY, and both Minneapolis Fed President Neel Kashkari and Kansas City Fed President Esther George have 9 a.m. appearances.

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