Tuesday, June 11, 2013

Continued Volatility From Rising Bond Yields

Global markets began to selloff overnight after the Bank of Japan concluded its latest policy meeting with no new changes announced.  That was a disappointment to some investors who hoped the central bank would take steps to address bond market volatility or increase its ETF program.

So Asian markets were generally lower overnight.  China was closed again for a holiday. 

Most European markets are also lower as yields in countries like Spain and Italy are on the rise.  The sharp rise in rates over the last month has added to volatility in financial markets. 

There wasn't much market moving news in the US, so trading here took its cue from overseas markets and started out weak.  The Dow was down -150 points in early trading but has since climbed back all the way to positive.  That's quite a turnaround so far, but its still very early in the trading session.  As we have said many times, it's how the market closes that matters most.

Part of the reason for the snapback is that though the yield in the 10-year Treasury rose to 2.26% this morning, it has since given back most of that rise.  It currently is hovering near 2.22%.

Commodities are mostly lower today despite weakness in the dollar.  Oil prices are down near $94.65 and gold prices have fallen back to $1374.

The volatility index couldn't get under 15 yesterday, and today is back above the 16 level.

Trading comment: No change to our recent stance.  We continue to think that although we are having some near-term volatility that the stock market will rally into quarter end as portfolio managers continue to address being underinvested.  Yesterday some stats came out that hedge funds and small investors are as heavily invested in equities as they have been since 2007.  Although that could be a slight negative, we still don't see the type of extreme bullish sentiment that has market prior market tops.


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