Which Way Yields?

While I await my strong USD trade to finally arrive (still leveraged short the Euro, long Euro-hedged European stocks)… or fail, I find another macro issue pretty interesting. Aside from tech, which on the back of the F.A.N.G. and the algo robots chasing them only knows one skyward direction (I took a limited loss on a QQQ short), getting the rest of the market right depends on getting your rotation right and much of the rotation theme is informed by interest rate dynamics.

We got bullish on bonds back in December on the Bloomberg/Yamada bottom, had well anticipated the subsequent bounce in yields and also the reaction that would come from the 10yr yield’s resistance level. Now that reaction is in process. TNX stopped right below the projected resistance. Here’s the updated chart from the linked post.

tnx

If you are investing in the stock market, especially if you are investing based on sector rotation like me, you had better get a read on the next major move in yields. Not only that, but you should also get a read on yield dynamics, like the yield curve (also fading now, and not in a happy direction for gold) and inflation expectations (TIP/IEF for example), which is consolidating.

yc2yr

tip ief

As for things that want rising interest rates, this Citi data graphic has been a decent guide.

yields vs. stock sectors

Nothing is ever black and white in the markets, but staying in line with probabilities is usually good for your financial health. So which way to you think yields are going? It’s hard to tell because so many people think people like Janet Yellen and her stupid jawbone control these things; but they don’t. Yellen’s jawbone came out yapping last week because yields had spiked… on cue, I will add again.

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