For better or for worse, the US Treasury comes to market this week with $118b worth of 2′s, 5′s and 7 year maturities. For better in that higher yields will bring out the buyers, for worse, a light week and the scare of higher yields will keep the buyer’s home, thus sending yields even higher. This comes as the yield spread between 2′s and 10′s is back at a record high of 285 bps as the bond market has begun the tightening process for the Fed and also adjusts to the ever deteriorating financials of the US government as 5 yr CDS trade near 6 month highs. The 2010 action in the stock market will be predominantly determined not by earnings (as the ’09 rally has priced in much of the rebound) but by interest rates. The 10 yr note yield today at 3.85% is matching the highest level since June. But for now, stocks continue their path of least resistance as the focus is on the improving global economic picture.

Category: MacroNotes

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

One Response to “2010 stock action will be dictated by the bond market”

  1. franklin411 says:

    Hey what ever happened to those “bond vigilantes” that were going to give the USA what for? =P