Making Sense of Bond Yields’ Frenetic Rise

Comparing the TNX and QQQ year-over-year gains

Mar 12, 2021 at 4:05 PM
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Bonds have become the boogeyman of 2021. It’s poetic when you think about it; the euphoria of the pandemic recovery has been at least temporarily derailed by an instrument of indebtedness. As of this writing, the 10-year treasury bond yield creeps up to annual highs near 1.63%, and panic is setting in on Wall Street over inflation. Many are predicting that tech and growth stocks –the darlings of the last 24 months – are due to be rotated out of.

So, let's marry the two for the time being. The chart we're going to refer to today is the year-over-year performance of the popular large-cap technology ETF Invesco Trust Series (QQQ) with the Cboe 10-Year Treasury Yield Index (TNX). The latter has wrestled the spotlight away from the former in the last few months, but the stage grew even bigger for the TNX after Federal Reserve Chair Jerome Powell took to the stage.

His comments Thursday afternoon sent the TNX roaring higher, bouncing from a pullback to an annual record. The TNX now boasts a 69% gain in 2021,while the QQQ is nursing a 3% year-to-date loss, at last check. But more notably, between March 3 and March 4 the TNX overtook the QQQ. The QQQ has taken its fair share of breathers in 2020, but never at a was it in danger of being conquered by the TNX.


Should alarm bells be going off? For context, thanks to Schaeffer's Senior Quantitative Analyst Rocky White, we were able to compare the TNX and QQQ year-over-year gains when such signals occurred and how the latter fared afterwards. Per the table below, such a crossover last occurred in April 2018, at the height of the so-called Trump trade war. And due to a big signal during the 2008 financial crisis, most of the returns skew negative. However, the 63-day returns, which roughly equates to three months, are somewhat promising following the last six occurrences after the 2008 crisis, including a QQQ pop of 10.2% back in April 2018.

Cotw2One last caveat to all of the handwringing over interest rates. The table above curated by Schaeffer's Senior Market Strategist Chris Prybal notes the 10-year note rate during the 2008 signal was 3.83%. That puts this two-week tantrum over 1.6% in context, doesn't it? Inflation concerns are of course real, that shouldn't be dissuaded. But with the table above, there's at least some historical precedent behind the assurance that the sky is indeed not falling.

Subscribers to Bernie Schaeffer's Chart of the Week received this commentary on Sunday, March 7.


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