10 Year Treasury yields near 10 month lows. The Yen near 6 month highs vs. the dollar. IWM down nearly 10%. And SPY trading at an all-time high. Pretty sure that is an unprecedented set of macro circumstances and it goes against the experiences of macro traders with decades of experience (who, not surprisingly, are having a tough time in 2014).
For example, the 10 year Treasury yield broke to its lowest level since October today, and very close to its lowest level since June (2.6145):
If the 10 year yield does break 2.6145, that would be a new 10 month low. The only other times when the 10 year yield has made a new 10 month low over the past 5 years were the May – Aug 2010 period, the July-Sept 2011 period, and the May – July 2012 period, which just so happen to be the worst selloffs in equities for the 5 year long bull market. In contrast, today, we are at an all-time high for the main SPX index.
The USD/JPY cross has also not shown much confirmation for the risk-on atmosphere in U.S. stocks, as it holds just above its 200 day moving average:
This cross was the focus in late 2012 and early 2013 as the BoJ unveiled its aggressive QE program, but it has been flat for the past year, as has the Nikkei equity index in Japan.
I discussed the IWM / SPY ratio hitting a 1 year low in last week’s CotD post. IWM showed some relative strength on Monday, but has been hit back the past two days. The strength in the SPY, in the face of weakness in high beta stocks coupled with the growth risks signaled by the bond market, continues to surprise us in the short-term. Our posture remains near term bearish overall (including yesterday’s VIX trade), though we will probably be quick on the exits on any market weakness given the persistence of the long-term uptrend in U.S. stocks.