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Yields pull back as stock market indexes see green shoots

Yields pull back as stock market indexes see green shoots
Dino Kurbegovic

Major stock indices like the Nasdaq and the S&P 500 are on track to finish the week in green after starting the session positively for the second day in a row. Yields are pulling back slightly, which had a positive effect early in market trading on October 21. 

On the other hand, there are sectors deeper in the red, such as the Communications Services sector, after a big plunge in Snap (NASDAQ: SNAP) shares after the firm missed its Q3 earnings. Following in its footstep is Twitter (NASDAQ: TWTR), whose Musk woes the market is still digesting.

In his daily market view, Caxton’s Michael Brown, on October 21, sounded off on risk assets, claiming that he is still bearish. 

“Equities had a choppy day, especially on Wall Street, and spent most of the day within a few points of the unchanged mark. I remain bearish on riskier assets for now, though will reassess this view if/when the S&P manages to break north of the 3,800 mark.”

The 10-year yield

After the initial jobless claims came in lower than expected on October 20, the markets reversed their positive start; however, the 10-year yield spiked. Despite a small drawdown today, the 10-year yield remains at 4.22%, a level not seen since the 2008 financial crisis.  

Furthermore, ING, a global financial institution of Dutch origin, sees a possibility for the 10-year yield to exceed 4.5%.

“With the effective funds rate now discounted at 5%, there is a path for the US 10yr to get to 4.5% (with 50bp through at the extreme in the past, when the funds rate peaks). It does not need to go much above this, provided the terminal rate discount does not continue to ratchet higher, and there are no guarantees there.”

Bond yields rising. Source: ING

Bond investors may rejoice if the yield hike continues, but it’s questionable how high they can go before the market experiences another bout of panic selling and pushes more investors out of the markets. For now, keeping one eye on bond yields seems prudent. 

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