Monday, April 10, 2006

U.S. long-term rates recovering

The dire prospect of an inverted yield curve presaging a coming recession is a market concern. So a correction on the long end of the curve is a promising sign for stock market bulls. The easy money period has come to a close. The Fed's steady rise in the discount rate has helped correct a distorted debt market over the last few years, and it is time yields moved back to more normal levels.

Although the stock market has yet to come to terms with this, the movement of long-term rates is growth-positive. Currently, the 10-year Treasury Yield Index leads the U.S. indexes for market performance over the first quarter of 2006. Its Stock Trends RSI is 112, ahead of the Dow Jones Transports and the Russel 2000 - at 110 and 107 respectively. Notably, the price momentum of the 10-year Treasury Index is above the Short-term Interest Rate Index, confirming the correction away from the inverted yield curve scenario. Not surprisingly, interest rate sensitive utility stocks are suffering, as Dow Jones Utility Index ranks at the bottom of the U.S. Stock Trends RSI ranking. See:

http://www.stocktrends.ca/stonline/indexes/?indexgrp=U&weekdate=2006-04-07&order=rsi
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