This Day On The Street
Continue to site
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Are Interest Rates About to Spike Again?

In the top panel of the chart below, you'll notice that the Morgan Stanley Cyclicals Index is hitting new multi-year highs relative to the S&P 500. At the same time, in the bottom panel you can see that 10-year Treasury yields have not been following cyclicals higher over the past few weeks. This divergent behavior is unlikely to persist.


If cyclicals are correct, we should start to see the tide of weaker-than-expected economic data turn. The next major test will be this Friday with the report of non-farm payrolls. The current expectation is for 150,000 new jobs, which would be a significant improvement from the December (75,000) and January (113,000) numbers.

If we see a sizable beat to these expectations, I would expect long duration bonds such as the iShares Barclays 20+ year Treasury ETF (TLT) to get crushed, with yields spiking higher. Currently, I view this as the more likely scenario as many of the important intermarket relationships I track are pointing to a continued risk-on environment.

However, if the report comes in below expectations, it will be difficult to continue to use weather as an excuse as expectations should have been lowered by now to account for colder weather. In this case, market participants may begin to wonder if bonds were right all along, and cyclicals could decline to resync down with bond yields.

It should be an interesting Friday morning, particularly in the bond market.


This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

2 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Submit an article to us!
SYM TRADE IT LAST %CHG
AAPL $128.95 0.00%
FB $78.99 0.00%
GOOG $537.90 0.00%
TSLA $226.03 0.00%
YHOO $42.51 0.00%

Markets

DOW 18,024.06 +183.54 1.03%
S&P 500 2,108.29 +22.78 1.09%
NASDAQ 5,005.3910 +63.9670 1.29%

Partners Compare Online Brokers

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs