Interest Rate Roundup

Tuesday, May 22, 2007

Mantra of the day: Out of bonds, into stocks ...

I'm seeing an interesting trend again today -- the fingerprints of a big "out of bonds, into stocks" asset class trade. Specifically, bonds started tanking within the past several minutes ... and stocks started rising sharply. Is it significant? Maybe, maybe not. This is short-term stuff. But we saw similar intraday moves during the day on May 18 (stocks up, bonds down). And the cumulative weight of these moves has pushed long bonds down to 109 21/32.

That leaves us dangerously close to the low end of the technical support area I outlined a few days ago. Yield-wise, we've broken above 4.80% to 4.82% on the 10s. If 4.9% gives way, it's a straight shot to 5% and beyond.

The interesting thing is that this is happening on a light economic week, with little fundamental guidance to drive trading. That tells me the bias in the market is to sell bonds, perhaps because of China diversification fears or perhaps because it's sinking in (for something like the 572nd time) that the Fed will not be cutting interest rates any time soon.


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