The bond market put the stock market on alert last week. Treasury rates finally reached a level where Wall Street tech equity buyers took notice. Yields had been rising higher and higher, slowly and steadily for weeks and weeks, as noted here in the Forbes.com Probabilities blog last month.
Higher rates mean you pay more when you borrow. For example, if you wanted to buy stocks and you didn’t want to put up all the money, you could borrow. If you did this 6 months ago, it probably seemed okay. If you wanted to try it again now, you might be thinking twice about the cost.
The U.S. Treasury 10-Year yields point-and-figure chart, for clarity:
You can see that these 10-Year Treasury yields hit lows and bottomed in early 2020. After a series of mostly ups and some downs, the basis points have taken off this year. That’s a 1.5% up from .4% in a short period of time. Note that the yields met and have now slightly exceeded the long-term downtrend line (in red). Some point-and-figure analysts might call this a significant resistance area.
The 10-Year yields candlestick chart, weekly:
Here’s how the basis points map out week-to-week from late 2017 to the present. The low point came during the March, 2020 market upheaval. By late that year yields had increased substantially: the long-term red-dotted downtrend line is broken in the November/December time frame. Since then, it’s been up and away as analysts wonder if 2% is coming soon.
The benchmark iShares 20-year Treasury Bond ETF daily chart:
This is essentially the upside-down version of the yields chart. Bonds sold off into late February and then rallied for a couple of weeks. Now, this week, the 20-Year Treasury Bond ETF benchmark is re-testing the year’s low prices. Note that volume is picking up substantially. Underneath the Ichimoku cloud since October is getting to be a long, long time.
The benchmark iShares 20-year Treasury Bond ETF weekly chart:
This bond ETF is back to the March, 2020 sell-off low — as a matter of fact, it looks as if it dipped just slightly below that last week. Price is below the Ichimoku cloud and the moving average convergence/divergence indicator (MACD) is giving no positive signal yet.
The ARKK Innovation ETF point-and-figure chart:
Rather than show tech stock performance by displaying the NASDAQ-100, it might be better to examine the hottest tech ETF right now — Cathie Wood’s so-called “Innovation” fund. It’s probably the best representation of the hot stock universe and last week’s sell-off shows how quickly the dumping can unfold.
Note that the ETF has had such a great record recently that the selling still has a long way to go before it hits the uptrend line. If Treasury yields continue to rise, could this fund make it all the way down there?
I do not hold positions in these investments. No recommendations are made one way or the other. If you’re an investor, you’d want to look much deeper into each of these situations. You can lose money trading or investing in stocks and other instruments. Always do your own independent research, due diligence and seek professional advice from a licensed investment advisor.