Watch the yield spread between the 10 & 2 year bonds

It’s an interesting market day developing for the U.S. session.

The chart below is an observation of when the spread between the 

U.S. 10 year yield minus the U.S. 2 year yield reaches an oversold “daily” reading and how it portends higher S&P 500 prices.

In the vain hope of being a trader, there is an opportunity to pick up some stocks which have been weaker over the past few days.

There is much noise in today’s European session (preceding the July 8 U.S. business day) with broad bond buying resulting in declining government yields, falling U.S. equity futures prices and weakness in European and Asian equities.

Hasn’t the stock market preferred lower bond yields, thus making equities more attractive?

……then why the media hubbub today about the weakness in the equity markets due to lower bond yields?

Lower bond yields are good for equities.

In the meantime, readers can refer to my recent posts about the range of the U.S. 10 year bond yield (and the spread) is in and the effect it should have on the stock market if it breaches either side.

July 8, 2021

by Rob Zdravevski

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