What a painful week it was. For BONDS, that is! And I have four key takeaways for traders watching Treasuries tank.
Let’s start with the numbers. The yield on the 30-Year Treasury Bond rose to as high as 4.98% on Friday from as low as 4.34% on Monday. The yield on the 10-Year Treasury Note surged to 4.57% from 3.89%. How big are these moves? Before they eased back a bit, 30-year yields were up the most in any three-day period since 1982!
As for the iShares 20+ Year Treasury Bond ETF (TLT), which moves inversely to yields because it tracks bond prices, it tanked to as low as $85 on April 11 from just over $94 on April 7. It’s not very often TLT loses around 10% in five trading days, as you can see it did in this MoneyShow Chart of the Day. As a matter of fact, this was the third-worst week for TLT since this century began!
When long-term Treasury yields rise this far, this fast, it gets noticed by equity traders. But what really stands out this time is the broken relationship between bond yields and stock prices. Treasuries are starting to trade like a “risky asset” – not the “ultimate safe haven” they have always been considered.
That’s new. That’s different. And it needs to be recognized and acknowledged by anyone trading bonds OR stocks. I see four likely impacts:
- It will put more upward pressure on gold (and silver).
- It will put downward pressure on rate-sensitive sectors of the market like utilities, home builders, and REITs.
- It will be accompanied by a steepening of the yield curve.
- And it will help keep markets more volatile.
Keep that in mind!
