Bond Yield Breakout: Is It Bullish Or Bearish

The 10-year yield has broken above the key 1% level. This bond yield breakout means that yields have little resistance until 1.50% hits. Based on the stimulus money being printed, that could happen within weeks. The 10-year yield has already surged to almost 1.2% in a week. In any other time, this epic move would be unprecedented. The bond yield breakout begs the question, is this bullish or bearish for stocks? The answer is, a small move up on yields is bullish, showing expectations that a recovery is underway in the economy. However, a major surge in yields (especially the 10-30 yr yields) in a short time frame is bearish. It signals that the amount of money printing is scaring those that are buying our debt. In other words, they are demanding a higher interest rate because of the risk that the United States defaults or they devalue the currency in a major way. The bond yield breakout is also a concern for stock valuations. Remember, the Federal Reserve has pushed interest rates lower since 2009 to help the economy/stocks. If yields continue to move higher, it will force an unwind in stocks. In other words, the higher yields go, the more of an option they become for investors looking for a safe investment in an otherwise risky stock valuation market. The bottom line is, a slow uptick in yields is fine, but a fast move signals major issues.

Based on the 10-year yield chart, a breakout occurred at 1.00% and will likely see a quick move to 1.50%.

(Click on image to enlarge)

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