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It was an enjoyable day in stocks, but a more interesting day in rates, with the 10-year rate, based on my last check, soaring by 20 bps to 4.2%. The 10-year rate has been positively correlated with the equity market for some time, and I wonder how long this positive correlation will last. Once rising rates are seen as a sign of trouble, that correlation will break and invert.
The real fun probably starts tomorrow, when the stock-bond correlation will be put to the test with the 3-year Treasury auction. You will want to pay the most attention to the spread between the high yield rate, the when-issued rate, and the indirect acceptance rate. If the HY rate is higher than the WI rate and the indirect acceptance is low, that will be a bad sign.
The true test is on Wednesday, when the 10-year treasury auction will be held, and then on Thursday, when the 30-year auction will be held. Indirect acceptance will tell us whether foreign buyers have stopped buying US bonds.
More importantly, the 10-year rate has successfully tested and bounced off the 3.9% level two times. The most unexpected move would be for the 10-year to form an inverse head-and-shoulders now and continue to move higher.
Of course, all of this hinges on the dollar, because if it weakens further, it will be a sign of the capital outflows. I’m not sure, but the pattern on the dollar doesn’t look complete at this point, meaning I think it can still fall further, back to around 100.
To be continued…
-Mike
Terms By ChatGPT
1. 10-year rate – The yield on the 10-year U.S. Treasury note; a benchmark for long-term interest rates and investor expectations on growth and inflation.
2.bps (basis points) – A unit equal to 0.01%. So, a 20 bps move means a 0.20% change in rate.
3.Positive correlation – When two variables (e.g., stock prices and bond yields) move in the same direction. If stocks rise and bond yields rise, they’re positively correlated.
4.Invert (correlation) – When a relationship flips. In this context, it means stocks and bond yields start moving in opposite directions.
5.3-year/10-year/30-year Treasury auction – Regular sales by the U.S. Treasury of government bonds. Different durations attract different investor profiles and give insights into demand for U.S. debt.
6.High yield (HY) rate – The highest accepted yield in a Treasury auction. Indicates how much interest the government must offer to attract buyers.
7.When-issued (WI) rate – The yield on a Treasury security traded before it is officially issued. Acts as a market expectation benchmark.
8.Indirect acceptance rate – The percentage of an auction bought by indirect bidders (typically foreign central banks or institutions). A low rate can signal weak foreign demand for U.S. debt.
9.Inverse head-and-shoulders – A technical analysis pattern that can indicate a reversal from a downtrend to an uptrend. Traders look at it in charts to anticipate potential bullish moves.
10.Capital outflows – When money leaves a country’s financial system—e.g., foreign investors selling U.S. assets, often weakening the dollar.
11.Dollar pattern not complete – A chartist or technical analyst way of saying the U.S. Dollar Index hasn’t finished forming a recognizable price pattern, suggesting more movement ahead.
12.Dollar at 100 – Refers to the U.S. Dollar Index (DXY), a measure of the dollar’s value against a basket of other currencies. “100” is a key psychological and technical level.
This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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