We want to focus on the areas of the market that benefit most from a rising rate environment as long as these yields continue to hold – such as commodities, commodity-related stocks, and cyclical/value sectors. To be clear, that is not the message global credit markets are sending us right now. We’ll want to shift to a more defensive posture if this ends up being the case. On the flip side, if benchmark yields worldwide begin to lose those key levels, then risk assets, in general, are most likely to come under further selling pressure. The bottom line is global yields remain buoyant as they hold the line – that’s their respective 2021 highs. We’ll continue to watch the Japanese 10-year for signs of confirmation. If it doesn’t and slips back within its prior range, we want to monitor other global yields in anticipation of more potential failed breakouts. With upside resolutions in other significant benchmark rates as our backdrop, we believe it’s just a matter of time before the Japanese 10-year follows suit. The former 2021 high near 17 basis points is our line in the sand.
The big question is whether or not it will hold. Instead of rebounding off this level, the Japanese 10-Year is chopping sideways and appears vulnerable. Similar to the US and German 10-year yields, the Japanese benchmark is in the process of testing a key level:īut, unlike its peers, it hasn’t experienced the same kind of reaction at its old highs. This is another data point supporting a rising rate environment.įinally, let’s turn our attention to Asia.
#Hold the line year series#
It retested its first-half highs from last year in early December and has continued to carve out a series of higher highs and higher lows in the time since. The UK 10-year is another European yield suggesting rates remain on the rise: Seeing one of the most important credit markets remain resilient is constructive for higher rates in the US and throughout the developed world. It’s digging in near its highs from last year and bouncing to the upside. Fast-forward to today, and we’re asking ourselves if that same level will turn into support!Īll kidding aside, the action in the German yield resembles its US counterpart. The joke last month was that the German 10-year was challenging resistance at zero. Now let’s look at rates around the globe for an indication of where things are likely headed here at home. On the other hand, if it loses those former highs, expect a messy market for both bonds and risk assets. And this kind of action makes sense, given commodities continue to rip higher.Īs long as the 10-year is above those former highs we’re in an environment where we want to remain net sellers of bonds. This is a logical place to see a short-term trough.
On the other hand, if we start to see more and more yields around the world fail and roll over, the US will likely follow.Īfter testing the 2021 first-half highs around 1.75 earlier in the month, the US 10-year is rebounding off this former resistance zone and rallying higher once again. If the new highs in global yields are holding, that would go a long way in supporting the upside resolution in the US 10-Year.
With the US 10-year hovering around its breakout level at last year’s highs we’re looking for any clues we can get for whether or not these new highs are here to stay. Today, we’re going to check in on some of those same yields and see if this is still a piece of confirming evidence for rates here in the US. We discussed how international yields – particularly those in developed Europe – confirmed the new highs in US rates earlier in the year. From the desk of Steven Strazza and Ian Culley rates around the world have been rolling over as uncertainty sweeps across markets.ĭespite the growing pessimism among investors, global yields are digging in at critical levels and bouncing higher in recent sessions.
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