Bonds Keep Grinding Lower

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Last week, price action in certain equities suggested interest rates would climb. Today, it happened.

Yields on five- and 10-year Treasury notes shot to new highs. Futures tracking their prices, which move in the opposite direction, cratered to levels last seen in 2014. Those tickers at @FV for the five-year and @TY for the 10-year.

It’s a continuation of a move that began in January as central banks around the world abandoned quantitative easing and economic growth kept improving. Recent data, like tepid inflation last week or retail sales, don’t seem as important. This is a longer-term trend of money pouring out of bonds.

It’s not terrible when you consider why that money had flocked to bonds because of the 2008 financial crisis. Policymakers kept rates abnormally low so economies could recover. But now they have and traders are finally jumping on the “sell bonds, and sell them now” bandwagon.

There are also winners and losers for equity traders. Banks and financials are being viewed as the clear winners because they’ll make more money from higher rates. But income stocks like utilities and real-estate investment trusts are getting slammed. The trend also seems to be weighing on homebuilders as higher rates dog house-hunters.

Five-year Treasury Futures (@FV)
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David Russell is VP of Content Strategy at TradeStation. Drawing on nearly two decades of experience as a financial journalist and analyst, his background includes equities, emerging markets, fixed-income and derivatives. He previously worked at Bloomberg News, CNBC and E*TRADE Financial. Russell systematically reviews countless global financial headlines and indicators in search of broad tradable trends that present opportunities repeatedly over time. Customers can expect him to keep them appraised of sector leadership, relative strength and the big stories – especially those overlooked by other commentators. He’s also a big fan of generating leverage with options to limit capital at risk.