Focused on Falling Yields

Regular readers of the Alert know that I often present charts of key market indicators such as the S&P 500 Index, oil, and exchange-traded funds (ETFs) of leading market segments such as China.

Today, I want to take a look at an equally important, yet not as closely followed market measure, long-term Treasury bond yields. In the chart below, we see a chart of the yield on the 30-Year Treasury Bond.

Yields, i.e., long-term interest rates, took a nosedive as the market fell in November and December 2008. As stocks got their mojo back at the beginning of the year, yields made their move higher as well. But curiously, the stock market and interest rates have diverged a bit since early August. Stocks have continued to power higher, while yields now have fallen below their short-term, 50-day moving average (blue line).

Today’s announcement by the Federal Reserve Open Market Committee that it would leave interest rates unchanged will likely be good for the equity markets, but we’ll have to see what kind of effect (if any) it’s going to have on long-term Treasury bond yields.

I recommend that you continue to monitor long-term yields, along with the major market equity indicators, as a continued divergence between the two may signal a shift in the pending fortune of stocks. Also, by watching yields, you’ll get a much fuller picture of the financial markets, and that fuller picture can help you to learn and to understand more about how the markets — and the economy — ebb and flow.