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February 23, 2006
Rates Gap Down
No matter what the market goes, the market commentators can always find a reason. Yesterday’s excuses du jour were falling oil prices and falling yields. Never mind that falling oil prices may reflect weakening demand and hence a slowing economy. Falling rates also reflect less economic strength as the Fed raises rates when the economy is strong and lowers rates when the economy is weak.
On the chart, the 10-year T-Note Yield gapped down three days ago and continued lower yesterday. This is short-term negative, but not enough to reverse the Jan-Feb surge. For that, rates need to move below 4.5% (45 on the chart). This would be most bearish for rates and bullish for bonds. My guess is that such a move would be accompanied by lower stock prices.
Posted by Arthur B. Hill at February 23, 2006 06:32 AM