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3:08 PM update:
The 10-year T-bond closed up big and the yields are down 4.04%. This is death sentence to equities.
2:00 PM, Nov 18, 2008
This past weekend Bond led the at office collections.
This week, will the ten-year bond lead the equities?
The rally in Ten-year bond today is ominous for the equities. In the 10-12 years since the 10-year has become the bellwether bond, I have rarely seen a move like today’s. The 10-year bond is up nearly 4% at the last check. For the week so far, the bond yields are down 8.5%. Benign PPI numbers were out this morning. Even before the numbers were released, inflation was not expected to be big problem AT THIS point. Then why such a big move in Treasuries? I can only think of one reason: flight to safety.
Usually quick drop in treasury yields is not good for equities. In the most recent past (in 2008), this happened three times.
- The week ending September 19
- The week ending October 10
- The week ending October 24
What happened during those weeks? Stocks dropped a minimum of 10%. It is possible that stocks will continue to charge higher form here. But I seriously doubt it. It will be hard for the equities to ignore such a big move in treasuries. If you are long equities, be very very careful.
Yes, this voids my earlier call for a short-term rally: Max Pain Alert
With this big a move in bonds, we need to wear crash-helmets on.
Hey – pass me the keys. I got something I want out here.
Nice post.
With my eye on the bond, it feels like ‘I know’ what the final hour or tomorrow’s trading going to look like. May be I will be humbled again.
Can someone explain to me when you use the Max Pain calculator why the values are significantly different when using Yahoo Finance vs the CBOE data.
Yahoo Finance: SPY value $97
CBOE: SPY value $69
November 18th, 2008 at 4:49 pm
Cant explain. I use http://www.optionpain.com/MaxPain/Max-Pain.php only
I thought if interest rates rise in T-bills,
indicates money going out of T-bills and going into equities.
But when flight to safety into T-bills rates go lower.
So if interest rates are rising would indicates money leaving T-bills
and going into the stock market (equity stocks rally).
November 18th, 2008 at 4:26 pm
I was thinking the same. Maybe we’re reading Mohan’s post incorrectly?
November 18th, 2008 at 4:31 pm
I think the 3:08 update should be:
“The 10-year T-bond closed DOWN 4.04%. This is death sentence to equities.”
November 18th, 2008 at 4:41 pm
What I said it correct. Bonds were up. Yields were down.
November 18th, 2008 at 4:31 pm
bond price goes up – yield goes down
November 18th, 2008 at 4:33 pm
T-Bills are short term treasuries (usually less than 2 years)
T-bond or T-Notes are longer maturities. Short-term rally in T-Bills does indicate flight to quality. In September I think 1-month bill briefly printed negative yield. It indicates panic.
T-Bills are trading at or near zero yields. It doesn’t make much sense to by T-bills at these levels. Under current conditions, 10 year note at 3.6% does look very attractive. Heck, even if yields drop to 3%, it is still better than a potential 20-30 further drop in equities. That is probably why bonds are RALLYING to LOWER yields.
Hope this is clear.
Stock market is flying afterhours. C R A Z Y.
Anyone have an opinion on ALD. I have been doing some research, the book value of the company actually seems solid. I also called up the company and the IR lady swore to me that they are paying this 4th quarter divi before they cut it next year. That would be a 25% dividend. I know its dangerous to buy a stock for the divi, but this seems like an exception, opinions?
November 18th, 2008 at 4:42 pm
ALD is almost a penny stock. I don’t have stomach for those stocks, which I usually avoid.
I think the day treasuries either don’t move on increased fear or move lower in price on increased fear will be the real shocker. Increased risk premiums demanded by foreign govt’s and other investors will result in a real shift in what is possible and no longer possible in repairing our economy. Higher rates across the board beyond our control.
The late day pop in the S&P was that many day traders expected a breakdown today, went short, and when it didn’t happen they covered their shorts and there were few sellers so the price ramped big-time. This all happened after the bond market closed. This implies the market may DUMP Wednesday (or soon).
November 18th, 2008 at 5:01 pm
Very Likely…
The move in bonds cannot be ignored, unless tomorrow yields push back up.
November 18th, 2008 at 5:09 pm
Move up enough in equities to suck some folks into thinking that once again, this is “the bottom”… and then the dive will begin. I’m imagining a Fri, Mon, Tue selloff that will hurt a lot of folks.
November 18th, 2008 at 5:22 pm
Likely this week ,as next week is a Holiday week and volume will be light, but who knows.
IYF is testing the bottom of a 1.5 year trendline. If financials are still leading this market, we need to keep a close eye on that.
perhaps more interestingly is that the yield of 5-year T-Notes reached the lowest closing today since June 13, 2003.
November 18th, 2008 at 7:33 pm
As mentioned above, I think the late pop was daytrader short covering when the market did not breakdown as they had expected. They place a huge wave of buy orders at market and the price ramps until they all fill, even into afterhours. I believe this is EXACTLY what happened last Thursday as well, which was totally reversed the next day. This is NOT bullish. This is not new buying. BEWARE.
The flight to bonds today is bearish for stocks.