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10-Year Rates May Climb To As High As 2% As Risk-Taking Returns

By Michael KramerBondsFeb 14, 2020 11:28AM ET
www.thechinesenews.net/analysis/10year-rates-may-climb-to-as-high-as-2-as-risktaking-returns-200507606
10-Year Rates May Climb To As High As 2% As Risk-Taking Returns
By Michael Kramer   |  Feb 14, 2020 11:28AM ET
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This post was written exclusively for Investing.com

The risk appetite among investors appears to be on the rise and that means yields may be on their way higher. Equity markets are climbing following the recent coronavirus led sell-off. Markets in Asia, North America, and Europe have rebounded sharply, and in some cases, to record highs.

Sector rotation in the S&P 500 suggests that investors are once again moving into the riskier parts of the equity market. But it isn’t just equity markets that are seeing a bounce: essential global growth commodities such as copper and oil appear to be stabilizing and even creating technical reversal patterns, suggesting they may begin to increase in price. As investors start to move back into risk assets, one would think that yields on the 10-year Treasury would start to rise once again.

S&P 500 Price Chart
S&P 500 Price Chart

Yields May Be on The Rise

Yields on the 10-year Treasury have declined to their lowest levels since early October as fears of the rapidly spreading coronavirus caused investors to sell risk assets and move into safe havens. However, the risk aversion trade appears to be slowly unwinding, and that should result in yields on the 10-year starting to risie once again.

The yield on the 10-year reached roughly 1.5%, where it found a healthy level of technical support in early February. Since that time, the rate has bounced back to approximately 1.62% as of Feb. 13. Another sign that yields may climb is found in the relative strength index which reached oversold levels below and is now trending higher. The pattern would suggest that rates will rise back to resistance at a level of around 1.75%, while potentially signaling an even longer-term move higher to 1.95%.

U.S. 10-year
U.S. 10-year

Equity Markets Are Racing Higher

The most obvious sign that the risk appetite of investors is shifting is the move in equity markets. Since Jan. 31, the markets around the world have been ripping higher, with the South Korea KOSPI rising by roughly 6%, while Germany has increased by almost 5.4% to a record high, and the S&P 500 has increased by almost 4.6%, also to a record high.

Sector Rotation

Sector rotation within the U.S. markets shows that the VanEck Vectors Semiconductor ETF (NYSE:SMH) has increased by over 10% in February alone. That has been followed by the SPDR S&P Biotech ETF (NYSE:XBI) which has jumped by almost 9%, and the Technology Select Sector SPDR ETF (NYSE:XLK) rise of 6.5%. Meanwhile, the two worse performing sectors have been the risk aversion groups, the Utilities SPDR ETF (NYSE:XLU) and Consumer Staples Select Sectors SPDR ETF (NYSE:XLP).

Sector Rotation
Sector Rotation

Commodities Climb

Even more impressive is that we are seeing commodities such as oil and copper begin to put in a bottom and are forming patterns that suggest significant reversals maybe on the way. For example, oil has formed a bullish reversal pattern known as a falling wedge. The commodity has already broken out of the falling wedge pattern, suggesting that oil prices may head higher from their current levels, perhaps to as high as $56.

WTI Futures
WTI Futures

If the market has moved from a risk-off to risk-on sentiment as the equity market rally, sector rotation and rising commodity prices would seem to suggest, then it seems fair to believe that yields have only one way to move from current levels, and that is higher. That may be especially true if the latest run of better than expected economic data continues.

10-Year Rates May Climb To As High As 2% As Risk-Taking Returns
 
10-Year Rates May Climb To As High As 2% As Risk-Taking Returns

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Comments (7)
Alexander Kralev
Alexander Kralev Feb 14, 2020 1:04PM ET
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Who paid you to post this title? Why only 2%? Why not "May go to 5% as coronavirus is defeated and risk taking continues"?
Matius Marvin
Matius Marvin Feb 14, 2020 1:02PM ET
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extra money with the broker who pay to upload this
chris hauck
chris hauck Feb 14, 2020 12:54PM ET
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LOL funny stuff........I am assuming you are joking sir.  If not lay off the pipe
clive rodgers
cgradge Feb 14, 2020 12:08PM ET
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Two words - Repo market
Jack Donald
Jack Donald Feb 14, 2020 12:08PM ET
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Sort of zoomed right by everyone. Figure the Feds are going to force a taper on their “not QE” QE.
Kenny Venezia
Kenny Venezia Feb 14, 2020 9:22AM ET
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and pigs will fly. that said, anything is possible with 100 of billions of dollars earmarked for crime and stock manipulation
ECL SALES
ECL SALES Feb 14, 2020 7:17AM ET
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POWELL says LOL
jim boblooch
jim boblooch Feb 14, 2020 6:14AM ET
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thanks
 
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