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A Phenomenon Worth Watching in 10-Year Yields

Posted By: Bernie Schaeffer 05/29/2014

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TNX Sliced Through 25, But Where Will It Find Bottom?
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Trader Comments

Bernie Schaeffer:

After the CBOE 10-Year Treasury Note Yield Index (TNX) held support at 25 over the past week or so, this level was sliced through on a gap Wednesday, with TNX closing at 24.38 after trading down to 24.34.

The moves in 10-year rates below 2.5% in late 2008/early 2009, in mid-2010, and in late 2011 were accompanied by stock market weakness and CBOE Volatility Index (VIX) pops. So, pretty much the polar opposite of the current market/volatility environment. This phenomenon certainly bears watching.

For what it's worth, it seems like the stock market in recent years has been at its strongest on the rallies in TNX after the dips below 25 -- but this is a "hindsight" strategy, since no one knows where and when the ultimate bottom in TNX will occur.

Tony Venosa:

Another interesting observation to mention is the ratio of junk bonds (HYG) to Treasury bonds (TLT) is diverging negatively versus the S&P 500 Index (both have had a strong positive correlation in recent years).  This divergence has become more pronounced in recent months.  The question will be whether U.S. equities follow suit and dive lower.

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