Stocks struggle while bonds continue to attract investment money.
Government bonds and the dollar are rallying as investors scramble into safe haven assets a day after the Federal Reserve pledged to buy more Treasurys to help keep the economic recovery on track. Stocks, in spite of many headwinds continue to try to rally. However, these two forces -stocks and bonds- have traditionally pulled in opposite directions. Tbonds and stocks cannot rally together for long.
Money flowing into bonds could also be money being pulled out of stocks. Thus, their tenuous move. Eventually,
What will it take to break bonds rise?
something has to give and either bonds will continue their unabated rise or stocks will move strongly up. For the latter, Tbonds should break their June lows but this doesn’t appear likely in the short term. As the Fed buys in the market the Ten year note trying to lower rates and hoping for another round of refinancing in corporates and mortgages, Tbonds seem to sail with the wind in their back. About 2 trillion in refi’s will be triggered if the Fed can get the Ten year down below 2.5, according to some estimates.
But technically speaking, bonds are already showing some negative divergence as they continue their escalate with less and less relative strength. This time, what is good for General Motors (and the rest of corprate America) may not be so good for the stock market.
