Bond yields dictating
the action
Another sell-off on Wall Street as the weakness in
the bond market (higher bond yields) continued to be
the story. There is short-term resistance in
yields right here, but that didn't help last month.
The long-term chart is a cause for concern.
A lot of TSP folks don't like the F fund. They
say it has risk but doesn't do as well as stocks, so
why not just use the G fund or the stock funds?
The answer is, there are better times than others to
be in the F fund. Earlier this year the threat
of a slowing economy brought bond yields down and
bond prices, and the F fund, up. But things
have changed as inflation has become more of a
concern.
Yields are now rising and, as you can see in the one
day chart of the yield of the 10-year T-Note and the
S&P 500, when yields moved lower during the day,
stocks moved higher. When yields moved higher,
stocks moved lower. By the end of the day,
bond yields were up big and stocks were down big.
Remember, bond prices (and the F fund) move in the
opposite direction as bond yields.
The short-term picture of the 10-year yield shows us
that at 52.48 (or 5.248%) we are at the high we saw
late last June (point B). This would be a time
that we could see a pullback in yields (a rise in
the F fund) but we had a similar situation in May
(point A) and bond yields cut through that
resistance like a hot knife through butter.
Still, a short-term pause in rising yields is a
strong possibility here.
Chart provided courtesy of
www.decisionpoint.com
The
economically sensitive PPI and CPI reports are due
out Thursday and Friday and that data will either
bring on a pullback in yields, or trigger a breakout
to the upside. Something to consider if you
are in the F fund or if you are thinking about
buying into this drop in bonds.
The long-term chart of the 10-year T-Note yield
shows us that a trend that has lasted over twelve
years has been broken. Yields have been
declining since the 1980's but if this break of the
trendline is any indication, we could be seeing an
end the lower yield trend.
Chart provided courtesy of
www.decisionpoint.com
What's so bad about higher yields? It just
makes things more expensive. The high rate of
M&A activity (mergers and acquisitions), something
that has kept the rally alive recently, should see a
slowdown. The cost to borrow money has risen.
You can also get a higher guaranteed return on your
money.
The G fund is now paying 5%. That will likely
go up again in July. Because of that, the G
fund will pay out its penny gains a little quicker
than we have seen in the past. There is a
chance we could see that penny gain today, just six
days after the last payout. It's a tough call
if it will happen Wednesday or Thursday this week.
So, if you don't like the heat of the F fund, you
may opt for the G fund. But again, bonds could
give us a snap back tally at any time. Or not.
The
EbbChart System
is making another move this morning. Read ebbnflow's recent commentary on the ebbchart page.
Trader Fred's
TSP
Trader System's stop loss was triggered last
week getting the system out of the market this week,
doing just what a stop loss is designed to do -
avoid further losses no matter what the submodels
are saying. Read
Fred's commentary on the
system
page.
The
TSP Talk Sentiment Survey system is 100% S fund
this week after a very close sentiment survey put it
back in the market this week.
China has regained nearly all of the huge losses it
took on just a couple of weeks ago. Is the
Shanghai Composite Index going to back off after a
double top, or will it make another leg higher?
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