Call it a bond yield bounce.
U.S. Treasury yields turned higher on Thursday following news that U.S.-China trade talks were to resume in October, mirroring a broad-based move up in the stock market. The yield on the U.S. 10-year Treasury rose to 1.57%.
And, lucky for yield-hunters, this positive action “could last for a little while,” says Matt Maley, chief market strategist at Miller Tabak.
“Yields have been going down all year, and there’s been a good reason for that,” he said Thursday on CNBC’s “Trading Nation,” pointing to Wall Street’s concerns around slower growth, U.S.-China trade, Brexit and other geopolitical issues.
Those worries have led to what Maley called “artificial buying” in the bond market, with investors flocking to bond-based mutual funds and other investments in the interest of hedging their existing positions. That action caused a 12% spike in the iShares 20+ Year Treasury Bond ETF (TLT) in August, a move rarely seen in the Treasury market.
“Now that some of the artificial buying has pulled back, it should lead to a bounce in interest rates and a sell-off in the bond market,” Maley said.
That theory is not only supported by the moves in the TLT — which, as of Thursday, was the most overbought it has been since its inception in 2002 — but by bond yields themselves, the strategist said.
Ten-year yields, for example, are “the most oversold they’ve been since 1998,” Maley said.
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“These are kind of the streams I think will lead to tradeable moves, not just ones that’ll last for a couple of days,” he said. “I’m not necessarily saying it’s the end of the whole move [and] rates are going to go straight up from here, but I do think it’s one that’ll last for a while.”
Indeed, the 10-year yield did decline slightly on Friday, to 1.553%.
For Mark Tepper, president and CEO of Strategic Wealth Partners, “all the easy money in Treasurys has already been made.”
“As an investor, it’s important to understand that the 30-year yield is pretty much in line with the dividend yield on the S&P 500 right now. So, which would you rather own over the next 10 years?” he asked during an interview on the same segment. “You’re getting the same yield with a growth component if you invest in stocks.”
And if the stock market rally holds and sends the S&P back to its all-time high around 3,025, yields will follow, Tepper said.
“Right now, all eyes are on the Fed. If the Fed cuts as expected, I think the yield curve eventually straightens out,” he said. “And, in my opinion, … the opportunities right now are much more attractive in the stock market.”
The Fed meets Sept. 17-18.
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