The Relief Rally Unravels

To put into perspective the size of the decline we've recently seen in fixed income, 10-year yields are now up on the year, and 10-year yields have risen about 100 basis points in the last month since the FOMC meeting. Today, alone, two-year Treasuries popped just under 10 basis points, from a yield of about 1.50% to 1.60%. That's about a 6% move, which is a pretty good day even for the SOX, much less a two-year piece of paper.

There's no way to put lipstick on this pig. Fixed income was shattered because fixed income was shattered. The bubble has been unwinding, not because of any great thing on the economy's side, as can be seen by the way equities trade. At the risk of repeating myself, let me just say that today was a very, very ugly day. Add to the mix the dollar's performance and it was a loss across the board for U.S. financial assets.

Euro, Alloy Belt Ode to Joy: Away from stocks, fixed income was, as noted, a bloodbath, with 30-year futures down more than $2. The weakness pushed the 10-year yield to 4.15% and got the 30-year back to around 5.06%. In currency land, the euro was up over 0.5%. Silver was up 0.5%, while gold was up 1%. This strengthens my belief that the weakness we saw about a week ago was in fact the low for this move in the metals, and the euro as well.

It now looks even more like we've seen the exhaustion peak in the market, as I was musing last week. An island reversal is, in fact, what one can see by looking at a chart of the Nasdaq Composite. (For nontech types, this is a graphic indication of exhaustion in the tape.) I would expect that the current decline has further to carry, after which time we will get a bounce, i.e., the failed rally I've been talking about for quite a while.