US Treasuries Poised to Drop in Yield…Again?

Last week, the S&P500 essentially closed unchanged from the week before. Actually, it was up a tiny 0.15%. Volume was very light, and dipped—the VIX index closed back under the super low 10 threshold. That said, the VIX has not fallen lower than the multi-year low it set in July last summer.

In terms of US economic reports, the data was mixed…again. The JOLTS jobs survey missed—-job openings were much lower than predicted. Producer prices met expectations, but core PPI came in hotter than expected. The opposite happened with consumer prices—both headline and core CPI was lower than predicted. Retail sales missed, but retail sales excluding autos were slightly better than expected. And finally, consumer sentiment—a very subjective measure—came in better than expected.

In terms of technical analysis, the extremely overstretched status of the S&P500, on both the daily and weekly charts, has not changed much. The closing price from last week, still looks like it’s literally “off the charts”. And this is happening despite a slew of headline risks coming across the wires over the last several weeks, including for example, a nuclear confrontation between the US and North Korea.

Finally, the technicals are suggesting that yields on the US 10 year Treasuries have topped out in the near term. A very distinct topping pattern has emerged using the MACD indicator. This is important because to the extent that this indicator is accurate, falling US 10 year Treasury yields are often associated with—or even precede—risk asset market declines.

So is this impending drop in Treasury yields foreshadowing some sort of upcoming sell-off in US equities and high yield bonds?  We’ll know for sure within a few weeks.

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