New Lows For Bond Yields Don't Inspire Confidence
The markets are down sharply in early trading after yesterday's low volume bounce. There are no specific news items per se, but the general concerns out of Europe that were absent from yesterday's trading are back on the front burner today.
Yields on sovereign debt are on the rise as concerns about the financial conditions in the eurozone resurface. Italy and Spain are the bond markets folks are watching. Greek yields have already been extraordinarily high.
The opposite is occurring here in the US (and in Germany), where bond yields have moved to new generational lows. The 10-year yield has broken recent support levels near 1.70% and plunged to 1.64% today. Those are the lowest yields in my lifetime, and they are not a good indicator for the health of the US economy. While bonds are being affected by a global flight to safety, a healthy outlook for our economy would normally correspond to higher yields in the bond market.
The dollar is also rallying in this flight-to-safety trade, and pushing the euro to new lows. The dollar is nearing a 2-year high. This is also weighing on commodities. Oil prices have fallen to $88, gold prices are lower near $1540, and silver and copper prices are down as well.
In economic news, pending home sales for April unexpectedly fell -5.5%. That's a big drop, and has taken some wind out of the sails of folks who have been pointing to a bottom in the housing market.
As for the VIX, I wrote yesterday that it was not a good sign that the VIX wasn't moving lower on the big rally yesterday. Today shows why folks were skeptical. The VIX is up over 11% to 23.42. For the last few weeks the VIX has been trading within the 20-25 range. Let's see if the upper end of that range holds next time we get there.
Trading comment: Yesterday's bounce came on very low volume. That's not what the bulls want to see. Bulls want to see rallies accompanied by rising volume, which has been missing of late. And while the eurozone news was absent from yesterday's headlines, it looks like just a brief one-day reprieve. I had been looking for the S&P 500 to rally at least into the 1340-1360 range. If the market can reverse today's losses into the close, we still might have a chance. But if we close near the lows for the day, then I think yesterday's high near SPX 1335 might be the high for the bounce in the short-term. Right now there are just a lot of headwinds for the market and it is understandably having difficulty making headway.