Tuesday Interest Rates & the US Dollar
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The yield curve has been flattening again as money has moved out of T-Bills and into 10Y notes which have now pulled back to below the 50-day. The weakness in rates is probably partly a flight to safetly, and partly due to slightly lower economic growth than anticipated. If 10Y rates stay within the range of about 4.9 and 5.3 it will probably be favorable towards equities.
I read a comment yesterday where someone suggested the 10Y rate is forming a bullish flag, implying that the recent trend lower in rates is temporary and that they are headed higher to above the 5.25% level. It could be a flag, but rates have already broken below 5% which is a break of important psychological support, and are now headed to a test of 4.91%. If the 4.91% level is broken, then the yield curve would likely invert again and it would suggest more than a short-term pullback implied by a bull flag.
A lot of people are nervously watching banks, S&L's, insurance and brokers to see if they can hold support as they come under pressure from the housing recession. Martin Pring often states that the market generally follows the brokers, and if that is true then for the market to hold its uptrend the brokers probably need to hold this support level.
