10-Year T-Yield Hits Brick Wall At 1.75% – Breakout Retest At 1.63%

The inability of the 10-year yield to continue to rally in the face of strong macro data could be telling. If the latest sideways move resolves downward, there could be repercussions for a whole host of assets, not the least of which are equities.

Tech has lost its mojo this year. True, in the wake of the November 3 presidential election and particularly after Pfizer (PFE) announced its positive vaccine news on the 9th that month, followed by Moderna’s (MRNA) a week after that, there has been a growth-to-value shift beginning last November. But beginning January, signs of distribution are appearing.

On the Nasdaq 100, January produced a long-legged doji, February a shooting star, and March a dragonfly doji. This followed a 105-percent surge from the low of March last year (monthly chart here). The index also lost a rising trend line from that low (Chart 3).

After losing 12 percent between its February 16 record high of 13879.77 and March 5 low, the Nasdaq 100 (13578.46) put in a higher low on the 25th, reclaiming the 50-day last Thursday with a gap-up. Tuesday, it gapped up again to fill a gap from February 22. If the prevailing thinking that tech has been hurt by higher rates is right, then a potential drop in the 10-year yield should act as a tailwind. The Nasdaq 100 is 2.2 percent from its all-time high.

The other major asset class worth watching is gold.

In the 12 months to February, core PCE (personal consumption expenditures), which is the Fed’s favorite measure of consumer inflation, rose 1.41 percent, down from 1.48 percent in January. But the trend more or less has been higher since last April when inflation dropped to 0.93 percent. The Fed itself expects higher inflation in the months ahead, although it views this as transitory.

A combination of rising inflation and falling rates will impact real rates, which are a huge driver of gold prices. Chart 4 plots the 10-year treasury inflation-indexed security – debt securities with coupon and principal payments indexed to inflation – with the yellow metal. The relationship is quite tight.

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