Bull Market in US Government Treasury Yields

The chart courtesy of Trading View illustrates the yields on the 30- year US Government Treasury bonds (TYX), the 10 – year US Government Treasury notes (TNX), and  the 5 – year US Government Treasury Notes (FVX).   Trading  View illustrates the  current FVX  yield as 27.56, I’ve modified the chart to show the yield at 2.756.   

There’s  a   bull  market in yields that could  soon  exceed  the peaks made in  late 2018. Also note that the FVX  5-year yield  is  2.756%, higher  than the  TNX  10- year yield of 2.712 and the TYX 30- year yield of 2.745. When shorter  term yields are higher than longer term yields  it’s called an inversion of the yield curve.  Inversions are a signal of a coming economic  contraction.  The last time an inversion occurred was in 2006, one year  before  a major peak in the US stock market.  In the current cycle US stocks could peak sooner  than one year after an inversion signal.

The 04/09/22 blog noted  that rising yields  could cause stock fund managers  to allocate some money into short-term US  Government notes.  This is just one factor that could trigger a significant decline  in US stock prices.  The other factor is the context in which yields are rising, and the context is what happened  because of the Coronavirus panic.  

March 2020 panic caused  the FOMC  to  lower  the 90- day rate/yield  to zero , this  made it much easier to borrow money to buy stocks.   With severely depressed stock prices its not surprising that a powerful stock bull market  resulted from the lowering  of rates. 

The  stock bull market since March 2020 was  based  primarily on  low bond/note yields and easing liquidity.  The US economic  fundamentals  in April 2022 are still not at the level prior to March 2020 yet US stock price are far above  the level reached  in early February 2020.   

The  low yields and easy liquidity was heaven  for  stock bulls.  Rising yields and tightening liquidity could be  hell.  

In  Elliott wave analysis there are always alternate wave counts, you  need to be prepared in case the prime wave count does not develop.  Recent blogs have focused on  the S&P 500 making a new all-time high.  What if something  else is developing?    

The daily SPX chart illustrates a low probability alternate bearish  Elliott wave count.

This is a low probability count because the presume Minor wave “2” is much larger than the higher degree  presumed Intermediate wave (2).   Also, internal and external  momentum was  bullish at the SPX 03/29/22 top.  Low probability does not mean  no  probability, if the SPX  breaks  below its recent trading range bottom at 4450 it could be  a  decline of a few days  or something  bigger.

The  current condition for US stocks  is mixed.  Seasonal  patterns are bullish until late April, yet rising yields are a looming  threat  for the stock bull market.

We could have a clearer picture of the main trend  after  the SPX  breaks  out of the trading range between 4450 and 4521.


Published by Mark Rivest

Independent investment advisor, trader, and writer. Articles have appeared on Technical Analysis of Stocks and Commodities , Traders.com Advantage, Futuresmag.com, and Finance Magnates.

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