A 7% pullback by the S&P 500 index SPX from its July 31 high has been relatively ordinary, but it’s been accompanied by a rout in the Treasury market that’s sent yields on 10-year notes BX:TMUBMUSD10Y and the 30-year bond BX:TMUBMUSD30Y to 16-year highs.
The NDR Daily Bond Sentiment Composite is also at its lowest level since March and deep into its extreme pessimism zone, they wrote, consistent with a 4.8% annualized gain by T-bond futures. It was a different story before the early 1990s, when rising yields tended to accompany weakness in stocks. Then, as now, rising yields signaled the Federal Reserve would need to step in to fight inflation. In the more recent past, rising long-term yields were seen as bullish for stocks because it indicated deflationary forces were becoming less powerful, Clissold said.
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