Still No Relief From The Bond Market

Last week the S&P500 sold down 5.95 percent.

We noted in an earlier post, Why This Correction Is Different, in that the current sell-off is different from all other corrections over the past 30 years (except a special case in 1999).  It is the first official correction in almost three decades that has taken place with a corresponding rise in bond yields.

No relief from the bond market last week as the 10-year bond yield closed pretty much unchanged as stocks got clobbered with S&P down almost 6 percent.

The following chart illustrates there have been only 141 rolling 5-day equivalent sell downs since 1950,  where the S&P500 sold off more than last week on a percentage basis.  Such a one week big dip is rare, occurring less than 1 percent of the total trading days in the past 70 years.

Moreover, most took place in clusters at the beginning of or during a bear market.  Excluding these,  there have only been around twelve 5-day price moves, such as last week.

High Short Interest In Bond Futures

Remember, the current sell-off coupled with the rare rise, or unchanged bond yield, is taking place with record shorts in the futures market.  If stocks really crack, bond yields will decline.

Recall during the October 19, 1987 stock market crash, the 10-year yield fell 150 bps during the next two weeks, or about 15 percent.  That would put the current 10-year yield at around 2.40 percent.

It’s about to get interesting.  Stock bulls need to step up this week and defend the 200-day moving average, right around Friday’s close, and 2,533, the recent low.

Stay tuned.