January 07, 2009

US Treasury Bonds & Stock Market Recap

Finally, the price of 30-year US Treasury Bond ($USB) has turned south. As you can see below, it remains in the overbought territory for almost one month before it went down a couple of days ago. The price drop is mainly caused by rising treasury yields as investors move to riskier securities, stocks especially.

The question is whether investors are moving back into riskier securities too early. The economic data remain dismal, and the Fed's report Tuesday of the minutes of its last meeting showed that some policymakers feared a "prolonged contraction" of the economy.

The government on Friday will report December employment numbers, and the general consensus forecast is that US lost 500K+ jobs last month. If we see a number worse than that, then we should see more downward pressure from the stock markets. Also, if tomorrow's S&P 500 index does not hold on to its 20 MA around 892 points, then sell signal will be triggered.