US ten-year bond yields may trigger equity high

Yield at time of writing – 2.70%.

As major US share indices such as the S&P 500 fulfil or, in the case of the Dow, close in on major targets, it is time to revisit the ever-important US bond markets. 

It remains my suspicion that a spike in bond yields will provide the fundamental trigger for what my technical indicators are already foretelling: that a high of some importance on the US stock market is rapidly approaching. My last note on the US ten-year yield was on 19 August, suggesting short positions remain in place with an unchanged target yield of 3.5%.

In the period since that last update, ten-year yields went as high as 2.96% before drifting lower on the back of the Federal Reserve's decision to extend its quantitative easing (QE) monetary expansion programme. That decision caught the market somewhat off-guard, and resulted in yields falling to 2.48% quite quickly. A raft of encouraging economic statistics have seen the yield creep back to 2.7% over the past three weeks, however, and the accompanying resumption in yield uptrend looks set to continue.

As mentioned previously, the 25-year fall in US ten-year Treasury yields, which was seeded in the stock market crash in 1987, has come to its natural end. A rise in yield to 3.5% would complete a 100% rise since the major support was first fulfilled in mid-2012.

Recommendation: stay short. Target yield 3.5%.

US ten-year bond yield chart

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