Market Brief – Tuesday 9/11/18

Stocks surged today but the more interesting news is in the bond market. Ten-year Treasury yields backed up to 2.97% which has been an area of strong resistance going back to June and August. A resistance level is where previous buyers or sellers have bought or sold. Markets frequently retest resistance levels to find out how convicted investors are at certain points.

Bond Bears are hoping the recent buyers from June and August are going to turn into sellers, which would cause yields to further rise. Bond Bulls are hoping the buyers back in June and August hold their position.

To keep score, the Bulls are in the 2.96x-3.1x% range and the Bears are solidly at 2.80%. Should yields continue to move higher, it’s a sign the Bulls aren’t very convicted about their position. Should yields fall below 2.80%, look for the Bears to rapidly exit their short position.

Should this level hold, it will be a strong message to the bond Bears that the Bulls are holding. Tomorrow the U.S. Treasury is reopening a previous 10-year Treasury note auction. The results of the auction will be closely watched by both the Bulls and Bears.

Today’s $35 billion three-year Treasury auction saw yields hit their highest level since May 2008! Demand for the auction was decent. Clearly, the higher yield is a function of investors demanding a higher coupon rate as the Fed is still on a path to higher bond yields.