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Global Macro: U.S. Yield Curve Still Rising

NEW YORK ( TheStreet) -- While global macro events are now driving day-to-day trading, one cannot forget about long-term trends affecting the market's overall direction.

Consider U.S. credit markets. Prices are said to discount all available information, which will be a useful assumption for today's analysis.

The U.S. yield curve is portrayed below by iShares Barclays 1-3 Year Treasury Bond (SHY) over iShares Barclays 20+ Year Treasury Bond (TLT).
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/12021397/1/global-uncertainty-helps-energy-etfs.html"><em>Global Uncertainty Helps Energy ETFs</em></a>]

As investors sell off long-dated bonds, the yields move higher. If the rates in long-dated bonds move up faster than the increase in short-dated bond rates, then the yield curve steepens.

Since May, when Federal Reserve Chairman Ben Bernanke began to discuss slowing down the Fed's bond purchases, the yield curve has been in a strong uptrend, even though public perception over the official start date to tapering has been volatile.

The market has discounted all relevant information and continued to deem a rise in rates as the appropriate path. This chart pattern should be a good predictor that the Fed will stick to the expected September start date for tapering.

The next chart is of iShares iBoxx $ Invest Grade Corp Bond (LQD). High-grade corporate bonds carry a similar pricing structure to Treasuries; however, they also factor in the additional credit, or default risk.
[Read: <a target="blank" data-add-tracking="true" href="http://www.thestreet.com/story/12021603/1/watching-the-banks-for-signs-of-trouble.html"><em>Watching the Banks for Signs of Trouble</em></a>]

Increasing rates have pushed the exchange-traded fund lower beginning in May. Corporate bonds finally bottomed in late June and have since consolidated, creating a strong bottom support level.

Rates don't look to be coming down just yet, but the steepness of the uptrend has somewhat diminished. Instead of trading with a reasonable gap to their 200-minute moving averages, both charts in this article show the price action slowing down in momentum, moving closer and even trading up against their moving average.
[Read: <a target="blank" data-add-tracking="true" href="http://www.mainstreet.com/article/money/investing/impact-investing-pr-ploy-or-public-benefit"><em>Impact Investing: PR Ploy or Public Benefit?</em></a>]

The yield curve should continue higher leading into September, but if there is some catalyst for a reversal, corporate bond prices should benefit.

At the time of publication the author had no position in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.
Andrew Sachais' focus is on analyzing markets with global macro-based strategies. Sachais is a chief investment strategist and portfolio manager at the start-up fund, Satch Kapital Investments. The fund uses ETF's traded on the U.S. stock market to gain exposure to both domestic and foreign assets. His strategy takes into consideration global equity, commodity, currency and debt markets. Sachais is a graduate of Georgetown University, where he earned a degree in Economics.

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