GLOBAL INTEREST RATES: WHAT ARE THE PRUDENT QUESTIONS AND APPLICATIONS?
Technical analysis doesn’t always provide the answer, but many times it helps you ask the right questions and trade/invest accordingly. Consistent with this, the month of September was kind to domestic and certain overseas interest rates, defined by the 10-year yield. In other words, interest rates in the U.S. and many overseas countries rose during the month of September—charts below.
What might higher global 10-year yields imply? Do higher global yields suggest a strong (stronger than expected) global economy and in turn higher worldwide inflation? Do higher domestic interest rates mean there is now competition for stocks, which could lead to lower stock prices? The 3-month treasury yield rate on 9/27/18 was 2.14% and the S&P 500 dividend yield at the end of August was 1.76%, according to the YCharts website. Are Central Banks now accommodative, restrictive, or somewhere in between? Could it be all of these things, a combination, or nothing at all?
Summary: We will know the answers to the questions above in the fullness of time. In the meantime, while the charts above show that 10-year interest rates are lower than they were 10 years ago, I have felt since late 2016/early 2017 that the secular bond bull market was ending. In mid-2017 that opinion looked foolish, but not so much now. In other words, when it comes to positioning your fixed income holdings, please prepare for higher domestic and global yields.
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Art Huprich, CMT
Chief Market Technician
Day Hagan Asset Management
—Written 10.01.2018. Chart source: Stockcharts. Table source: LPL Research
PDF Copy of Article: Day Hagan Tech Talk October 1, 2018 (pdf)
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