Sunday, April 11, 2010

Chart of the Week: 10-Year Treasury Note Yield

I’ll be the first to admit that I have never considered myself a ‘bond guy’ and I spend much less time than I probably should studying the bond market. That being said, I know I have quite a few equity-centric readers who think the bond market moves too slowly to warrant their attention. The attitude is frequently, “I’ll never be a bond trader, so why should I spend my time watching bonds?”

My quick answer to bond skeptics is that bonds can help to divine the direction of interest rates and bonds frequently make major market turns before stocks do. Additionally, with the advent of bond ETFs such as the highly liquid TLT (and its +3x and -3x counterparts, TMF and TMV), it is now much easier for the retail investor to trade the U.S. Treasury long bond and their volatile triple ETF counterparts, as well as some of the shorter-dated Treasury ETFs, such as IEF, which is comprised of U.S. Treasury Notes with a target maturity of 7-10 years.

The bond world is so large that I have singled out one particular bond in this week’s chart of the week as the bond number for non-bond people to follow. The chart is the yield on the 10-Year U.S. Treasury Note, which is the de facto benchmark for government and sometimes even for corporate bonds as well.

Note that the yield on the 10-Year Treasury Note just hit 4.00 last week, attracting buyers such as BlackRock (BLK), which found the steep yield curve a good reason to buy some of the 10-Year Treasury Notes.

For those who wish to dive further into the subject of intermarket relationships such as the link between bonds and stocks, an excellent place to start is with John Murphy’s Intermarket Analysis.

For more on related subjects, readers are encouraged to check out:


[source: StockCharts.com]

Disclosure(s): short TLT at time of writing

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