Yields push higher and the banks like it
The ten-year yield is back at its highest level since spring. Long bonds sold off, banks rallied, and the rate-sensitive corners of the market told the same story all day.
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A weak bond auction in the early afternoon did the damage. Yields jumped, long-duration bond funds made a new low for the move, and the equity market sorted itself by rate sensitivity within minutes.
Winners and losers
- Banks caught a bid. JPMorgan closed at a high for the year, and the regional bank index followed.
- Homebuilders and utilities were the weakest groups, which is exactly what you would expect on a yield spike.
- Megacap tech shrugged it off. That is new. In past yield scares it was the first thing sold.
Why it matters
Every leg higher in yields this year has eventually produced a pullback in stocks. The difference this time is that the move is happening while earnings estimates are rising, so the market has something to lean on. I’m not bearish on this alone, but I am watching the pace: a fast move in yields is a problem, a slow one is manageable.
“Demand at the long end was the softest of the year,” according to the auction summary.
For the journal
I have no rate trade on, and I am not going to start one on a single auction. The actionable idea is the bank strength, and I would want a pullback before touching it.