lakeelmoleader.com
lakeelmoleader.com February 17, 2018


Treasury bond yield spike spooks stock market bulls

10 February 2018, 06:41 | Frank Carlson

By Chuck Mikolajczak

By Chuck Mikolajczak

Shares have headed south again on Wall Street. 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.

While those concerns have been the catalyst for recent selling, the retreat in equities had been long awaited by investors as the market climbed nearly steadily to record highs earlier this year.

What's odd, however, is while rising rates are viewed as the enemy of stocks, history suggests that higher long-term bond yields don't have to be a threat to stocks, Don Luskin, chief investment officer at TrendMacro, noted in a report.

"Nothing seems to be going right for the world's biggest bond market: "Auctions of 10- and 30-year debt this week saw tepid demand; Japan dumped USA debt in December, making 2017 the largest exodus from Treasuries in a decade; and, as the Bank of England just * a itemscope="itemscope" itemprop="StoryLink" href="/news/terminal/P3TYO33T6SQR" class="terminal-news-story" target="_blank" rel="nofollow noopener" *reminded traders, the global economy is humming.

The sharp increase in bond yields in India over the past few weeks has been attributed to investors' concerns about the fiscal slippage in FY18 and a higher-than-expected fiscal deficit target for FY19.

Many are bracing for more wild swings ahead as the Cboe Volatility index is holding at twice its level from a week ago. To drum up demand for that higher supply, rates may have to go up.

Alexandra Coupe, associate director investment manager PAAMCO, said rising inflation made stocks less attractive. Investors should bear in mind that almost a quarter of government bonds are still negative yielding and more than 90% of bond globally still yield less than a 10 year Treasury, so the demand for yield should naturally act as a constrain on surging yield levels.

"Higher rates are going to slow the economy, we just don't know when and we don't know which rates to watch, and I think that's the debate that's now playing out in the market", he said.

Luger Erin Hamlin chosen as U.S. flag-bearer for Opening Ceremonies
Hamlin will don an exclusive "Team USA Opening Ceremony heated parka" designed by Polo Ralph Lauren, the statement said. And Davis was definitely not happy about it, venting in a tweet that the coin toss was "dishonorably" done.

Analysts are attributing this fall to rising global bond yields, which have unsettled investors and central banks the world over.

But why are rising bond yields hurting equities?

"You don't want to move too much too soon", Ms Coupe said. That's why everybody is going back and forth. Rising bond yields, he notes, are a sign of economic strength.

Yields on bonds don't move in lockstep with Fed policy. The German 10-year yield, Europe's benchmark, climbed to its highest level since late 2015. "As it approaches 3 per cent, concerns about inflation and competition for stocks by fixed income securities are increasing". Now if you reverse PE (i.e. 1/24.53 or 4.07 per cent), you get what is called the earnings yield. Bond yields are rising as the Federal Reserve trims its United States bond holdings. The company also issued a disappointing forecast. Social-media company Twitter posted its first profit, and Yum Brands, Cardinal Health and Tyson Foods also exceeded earnings expectations. To fight inflation, central banks go hawkish on interest rates.

One worrisome thing for bond investors that's contributing to volatility is the unknown: new Federal Reserve Chairman Jerome Powell. But they're going up now at a time when anxiety about the monetary policy is obviously on the rise. And the Fed may hesitate to come to the rescue.

Stocks closed lower Wednesday, but not before swinging wildly to sharply higher and lower levels, as interest rates rose.

Simply put, when a country's macro-economic situation deteriorates, bond prices fall and bond yields rise, as investors seek more return on bonds to compensate for the risk involved.



Other News

Trending Now

Fake doctor infects more than 20 people with HIV through contaminated syringes
For ₹10, he would provide both medicine and injection to the patients. "So we are also mapping truck drivers", he said. The therapy involves a combination of anti-retroviral drugs to suppress HIV and stop its progression.

Boy with Down's Syndrome becomes face of United States baby food giant Gerber
Lucas Warren , 18-month-old baby from Dalton, Georgia, has been declared the victor of the annual Gerber Baby Photo Search. The victor of Gerber's annual photo search, which began in 2010, was revealed on NBC's "Today Show" on Wednesday morning.

Killed, Scores Injured in Twin Bombing at Libya Mosque
The summary executions are believed to be carried out by Mahmoud al-Werfalli, a special forces commander for the LNA. It would be recalled that a few weeks ago, at least 33 people were killed in a double vehicle bombing in Benghazi.

High school graduation rate edges past 80 percent
"Our kids are graduating high school and going to college at record rates, while dropping out less than ever before", he added. And in Yonkers, it exceeded the statewide rate for the first time: 82.8 percent, up 4.5 percentage points.

Twitter reacts to Matt Patricia's appearance transformation with Lions
The Lions went 9-7 last season and missed the playoffs , ranking among the NFL's worst rushing teams for the fourth straight year. The team officially released a list of all of the new assistant coaches joining Patricia in Detroit, headlined by Pasqualoni.

Policeman killed, two wounded in Georgia shooting
Corley's brother Wade asked for prayers for the officers' families and said he felt lucky his brother was not more seriously hurt. But while trying to serve the warrant, an altercation broke out, according to the sheriff, and all three officers were shot.

Black Panther director wanted to include Kraven the Hunter
Best-known as a Spider-Man villain, Kraven's MO is to go after superheroes with animal names and mount their heads on his wall. In July 2017 it was reported that Sony, who control the Spider-Man film rights, were developing a film featuring Kraven.

Congressional candidate to CNN anchor: 'Yes, I deny the holocaust'
His lone candidacy makes him a likely lock as the GOP nominee in November, although the Republican Party has denounced him. On a separate page, he calls Jews "blood-thirsty criminal vampires" and claims there is "no evidence" of the Holocaust .

Ronald Koeman "proud" to take on Holland coaching post
The Netherlands have officially announced the appointment of Ronald Koeman as their new manager. I am looking forward to the forthcoming years as national team coach".

Cavaliers trading Isaiah Thomas to Lakers for Larry Nance Jr., Jordan Clarkson
Cleveland did all of this without giving up Kevin Love or the its much sought after 2018 first-round pick from the Brooklyn Nets . He told an ESPN reporter that he believed the "Greek Freak" would become an MVP candidate and win a championship with the Bucks.