Why do you claim that long term treasury yields are rising?The 10y is at 2.73%, which is down from 3.01% at the beginning of the year or 2.75% last week.
Wendy, a well researched post, as always! But I don't know if the following is true: Long-term Treasury yields are gradually rising again. The yield curve is not as steep as it was before the storm blew in about a month ago, but it is steepening. This is normal for an improving economy. If the economy strengthens in the spring as the unusually harsh winter weather mitigates, the yield curve will probably steepen further. It is normal for interest rates to rise in the spring as the demand for mortgage lending increases. My understanding is that the yield curve lowers and steepens when the economy is slowing and rises and flattens when the growth in the economy is accelarating. In other words, short term rates rise and fall much more rapidly than long term rates (in all scenarios.)Maybe by "steepens" you actually meant "rises" (i.e. referring to the absolute levels and not the slope of the yield curve)?
<In other words, short term rates rise and fall much more rapidly than long term rates (in all scenarios.)>In a free market, you are correct, as shown by the Dynamic Yield Curve.However, the market has not been free since 2008, when the Federal Reserve pegged the short-term rate to essentially zero. This is like tying a dog's tail to a tree. The tail can't wag anymore (the short-term bonds that used to wag most) and only his front end (long-term rates) can move. It's unnatural, but that's the situation we will have until the Fed frees the market again.Wendy
Here's the Dynamic Yield Curve so you can see for yourself.http://stockcharts.com/freecharts/yieldcurve.phpWendy
Wendy,This is a fascinating Bloomberg article on the FED's quarterly forecast reporting process. A lot of things at the FED are starting to change. Molasses moves faster. Dave http://www.bloomberg.com/news/2014-02-24/yellen-seeking-new-...Snip: As Janet Yellen seeks to forge a consensus on a new strategy for communicating the Federal Reserve’s intention to keep rates low, she can reach for a six-year-old tool: the Fed’s quarterly forecasts.Policy makers plan to abandon their promise to hold interest rates near zero at least as long as unemployment remains above 6.5 percent, according to minutes of their January meeting. With the jobless rate dropping to 6.6 percent and the economy still in need of support from the Fed, the strategy is nearly obsolete.
Although the trading day is still on, the S&P500 has set a new record high intraday this Monday February 24th.The new 52-week highs this last week totaled 353 and the lows only 52, better than the week before when the highs were 272 and lows 67. both weeks were good and much better than for the two weeks before that. So yes, it seems like the market is climbing a "wall of worry" again. And the breadth was positive too the last two weeks and even the week before that whereas it had been negative for two weeks before that, one of which had good new high and low figures.As has been the case for some months now, the NASDAQ has been even better than the NYSE with 368 new 52-week highs this last week and only 47 new lows whereas the week before saw 291 new 52-week highs vs 54 new 52-week lows. the breadth was also positive this last week although not as good as the week before.So here is even more information for "risk on."brucedoe
<Why do you claim that long term treasury yields are rising?>The charts show a dip in Treasury yields in early February consistent with the "Extreme Fear" seen at that time. The increase since that time is slight but I think it will continue as confidence builds.http://stockcharts.com/freecharts/candleglance.html?$IRX,$US...Wendy
I think your Fear and Greed Index might be miscalibrated if you think early February was "extreme fear" and we are presently neutral.Every flavor of risk is overbought, not only on a short term basis but on a multiyear and multidecade basis.
<I think your Fear and Greed Index might be miscalibrated if you think early February was "extreme fear" and we are presently neutral.Every flavor of risk is overbought, not only on a short term basis but on a multiyear and multidecade basis. >I agree with you. However, the Fear and Greed Index is not an absolute index but a relative index. It measures movements so it is useful as a short-term indicator. http://money.cnn.com/data/fear-and-greed/The weekly Control Panel and METAR "weather report" are only useful for the short term, such as a week or two. It reports which assets are advancing and declining relative to each other, not relative to historical valuations.I have included two of Mungofitch's momentum indicators in the Control Panel (the "99-day rule" and "Long MA"). Both of these are bullish. However, mungofitch has said many times that his calculations show that stocks are overvalued by 40% on a historical basis. My own studies of Treasury bond real yields, which cover 60 years of data, show that bonds are overvalued by about as much on a historical basis. So both of us are deeply bearish on a long-term value basis -- but we don't know how "long" it will be. My big brother, Jeff (OrmontUS), thinks 2 years and I am inclined to agree based on the timing of the 2007 recession and 2008 financial crisis after Treasury yields began to rise in 2005.That does not change the usefulness of shorter term indicators for those who are invested in these markets.Wendy
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