www.varchev.com

Stocks could crash after the next treasury auction in a couple of weeks

Rating:

12345
Loading...

While Wall Street braces for 10-Year Treasury yields to tick over 3 percent, one bond expert believes that will feel like a piece of cake compared to what may come next.

Sit Investment Associates' Bryce Doty believes investors are in "denial" over how high rates could go this year and the painful impact it could have on stocks.

"We didn't pierce 3 percent this time, but the next 10-Year auction in a couple of weeks is probably certain to do that," he said recently on CNBC's "Futures Now." "I think it's going to just keep going. 10, 20 basis points a month gets you to 4 percent in a hurry."

With the 10-Year Treasury yield trading at four-year highs, Doty notes the bond market is now leading the stock market. Thus, he says, another significant leg down for stocks could be imminent.

"Everything has changed. You now have the stock market reacting to an uptick in yields and bonds rather than the other way around," Doty stated. "So, I think it's going to take investors a while to re-calibrate that reality."

Doty calls the environment "surreal" — pointing to the Federal Reserve's intention to keep unwinding a $14 trillion dollar trade. It comes as debt issuance builds to cover exploding budget deficits, sparked by a combination of higher spending and new tax cuts that some analysts warn could make the problem worse.

"If they stop now, what kind of message does that send? It makes people think 'Oh, the economy is going into the tank.' But, no one believes that," Doty said. "So, then they lose credibility. It's a tough, tough corner they've painted themselves into."

A rise in rates to 4.5 percent by year-end would cause a 20 percent to 25 percent decline in equity prices.

Big changes ahead

While a recent drop in stocks may have been fueled by concerns tied to the 10-year yield approaching 3 percent, many strategists have said they felt equities could continue to rise until reaching 3.5 percent or 4 percent.

A 20 percent to 25 percent drop in stocks, as measured from the S&P 500’s Jan. 26 peak close of 2,872.87, would take the gauge to a range of approximately 2,155-2,298. It closed on Friday at 2,747.30 after dropping as low as 2,581 on Feb. 8 at the apex of the recent volatility-fueled meltdown. If this scenario did play out with Goldman’s numbers, stocks would have a long way further down to go.

Source: Bloomberg Pro Terminal

Jr Trader Alexander Kumanov


 Varchev Traders

Read more:

RECCOMEND WAS THIS POST USEFUL FOR YOU?
If you think, we can improve that section,
please comment. Your oppinion is imortant for us.
WARNING: Any news, opinions, research, data or other information contained within this website is provided as general market commentary and does not constitute investment or trading advice. Varchev Finance Ltd. expressly disclaims any liability for any lost principal or profits which may arise directly or indirectly from the use of or reliance on such information. Varchev Finance Ltd. may provide information, quotes, references and links to or from other sites and blogs and other sources of economic and market information as an educational service to its clients and prospects and does not endorse the opinions or recommendations of the sites, blogs or other sources of information.
Varchev Finance

London


25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256

Universal numbers

World Financial Markets - 0700 17 600    Varchev Exchange - 0700 115 44

Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.

Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006

The information on this site is not directed at residents of the United States or Belgium and is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.


Disclaimer:

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.

chat with dealer
chat with dealer
Cookies policy