Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
VR and Gaming Becomes the Metaverse - 7th Dec 21
How to Read Your Smart Meter - Economy 7, Day and Night Rate Readings SMETS2 EDF - 7th Dec 21
For Profit or for Loss: 4 Tips for Selling ASX Shares - 7th Dec 21
INTEL Bargain Teck Stocks Trading at 15.5% Discount Sale - 7th Dec 21
US Bonds Yield Curve is not currently an inflationist’s friend - 7th Dec 21
Omicron COVID Variant-Possible Strong Stock Market INDU & TRAN Rally - 7th Dec 21
The New Tech That Could Take Tesla To $2 Trillion - 7th Dec 21
S&P 500 – Is a 5% Correction Enough? - 6th Dec 21
Global Stock Markets It’s Do-Or-Die Time - 6th Dec 21
Hawks Triumph, Doves Lose, Gold Bulls Cry! - 6th Dec 21
How Stock Investors Can Cash in on President Biden’s new Climate Plan - 6th Dec 21
The Lithium Tech That Could Send The EV Boom Into Overdrive - 6th Dec 21
How Stagflation Effects Stocks - 5th Dec 21
Bitcoin FLASH CRASH! Cryptos Blood Bath as Exchanges Run Stops, An Early Christmas Present for Some? - 5th Dec 21
TESCO Pre Omicron Panic Christmas Decorations Festive Shop 2021 - 5th Dec 21
Dow Stock Market Trend Forecast Into Mid 2022 - 4th Dec 21
INVESTING LESSON - Give your Portfolio Some Breathing Space - 4th Dec 21
Don’t Get Yourself Into a Bull Trap With Gold - 4th Dec 21
4 Tips To Help You Take Better Care Of Your Personal Finances- 4th Dec 21
What Is A Golden Cross Pattern In Trading? - 4th Dec 21
Bitcoin Price TRIGGER for Accumulating Into Alt Coins for 2022 Price Explosion - Part 2 - 3rd Dec 21
Stock Market Major Turning Point Taking Place - 3rd Dec 21
The Masters of the Universe and Gold - 3rd Dec 21
This simple Stock Market mindset shift could help you make millions - 3rd Dec 21
Will the Glasgow Summit (COP26) Affect Energy Prices? - 3rd Dec 21
Peloton 35% CRASH a Lesson of What Happens When One Over Pays for a Loss Making Growth Stock - 1st Dec 21
Stock Market Sentiment Speaks: I Fear For Retirees For The Next 20 Years - 1st Dec 21 t
Will the Anointed Finanical Experts Get It Wrong Again? - 1st Dec 21
Main Differences Between the UK and Canadian Gaming Markets - 1st Dec 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Bond Yields Yet to Confirm the New Stocks Bull Market

Stock-Markets / Stock Index Trading Sep 29, 2009 - 04:10 AM GMT

By: Donald_W_Dony


Best Financial Markets Analysis ArticleOver the past two decades, the US yield curve has been a very reliable indicator to the major peaks and troughs in the stock market. The periods in which the curve is steepest correlates closely to the bottom of the bear market. The opposite develops at market tops. When the yield curve is flat, this occurs at the top in the bull market.

Chart 1 shows the relative strength comparison between the longer-term US Treasury 10-year yields and the shorter 2-year yields. At the top of the last bull market in 2000, the yield curve was flat. As the 2000 to 2002 bear market took hold, the yield curve greatly steepened. 10-year yields rose and the short-term 2-year rates quickly dropped. The Fed typically lowers the lending rate during a contraction in the business cycle. This action is designed to help stimulate consumer spending and 'kick start' the economy. In 2003, 2-year bond yields had declined to their lowest level and greatest spread over the 10-year yields. This crest in the yield curve was within 6 months of the final bottom to the 2000-2002 bear market.

The pattern slowly reversed as the new bull market began to gain traction. From 2003 to 2007, the 2-year Treasury yield gradually rose against the longer 10-year yield. The Fed was attempting to cool the economy by hiking the lending rates which makes loans more expensive. By late 2007 and early 2008, short and long-term rates were similar producing a flat curve. The last time the yield curve was flat was in 1999-2000, at the peak of the previous bull market.

The threat of a weakening economy in 2008 forced the Fed to quickly lower short-term interest rates and cause the yield curve to once again spike upward.

Chart 2 illustrates the two individual Treasury bond yields. Both rates were decreasing in 2007 and 2008, however, the 10-year yields declined at a slower pace. In 2009, the longer bond rates began to climb faster than the short 2-year rates. This action helped maintain the present steep yield curve. Models suggest that the 2-year yields will remain at the current levels and the 10-year rates should rise slightly. This anticipated movement should keep the yield curve at its present angle into Q4.

Bottom line: The US yield curve provides a valuable timing tool to the S&P 500. Though the movement of the curve sometimes lags the stock market by as much as six to eight months, its data adds confirmation to a new trend in equities. The ratio needs to fall below 3.00 before the yield curve can provide substantiate evidence of the longer-term advance in stocks.

More research can be found in the October newsletter. Go to and click on member login.

Your comments are always welcomed.

By Donald W. Dony, FCSI, MFTA

COPYRIGHT © 2009 Donald W. Dony
Donald W. Dony, FCSI, MFTA has been in the investment profession for over 20 years, first as a stock broker in the mid 1980's and then as the principal of D. W. Dony and Associates Inc., a financial consulting firm to present.  He is the editor and publisher of the Technical Speculator, a monthly international investment newsletter, which specializes in major world equity markets, currencies, bonds and interest rates as well as the precious metals markets.   

Donald is also an instructor for the Canadian Securities Institute (CSI). He is often called upon to design technical analysis training programs and to provide teaching to industry professionals on technical analysis at many of Canada's leading brokerage firms.  He is a respected specialist in the area of intermarket and cycle analysis and a frequent speaker at investment conferences.

Mr. Dony is a member of the Canadian Society of Technical Analysts (CSTA) and the International Federation of Technical Analysts (IFTA).

Donald W. Dony Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in