Bond yields correlation with NASDAQ 100 and Cryptocurrencies
As the chart shows, after last Wednesday's FOMC announcement, the 10 Year Treasury yields broke above 1.65 for a test of 1.75 with potential move toward 2%. This is a hugely important move and is part of what has affected the NASDAQ and the recent corrections in crypto currencies. There is also the additional move out of the high growth and high performance stocks in NASDAQ to cyclicals and this can be seen in the divergence between NASDAQ and S&P 500; we saw multiple days when NASDAQ has either lagged S&P 500 or has been negative while S&P 500 has remained marginally positive. Given the correlation between NASDAQ and the crypto currencies these trends have also influenced the crypto currency trades.
It is worth noting that the yield on 10 year Treasury is the basis for corporate bonds and therefore, has a significant impact on the market; in other words, higher 10 year yields higher borrowing costs.
Therefore, as Jerome Powell and FOMC try to keep the current low lending rates to support and stimulate the economy, the market is pricing increasing inflation expectations into the 10 year Treasuries and this is creating increasing tension in the bond markets (for those who are familiar with technical analysis, this means increased convexivity).
Conclusion:
TLDR: This means we are up for a rocky ride going forward and somewhat downward pressure on risk appetite. Therefore, investors need to be more selective than before with their investment choices.
If you are investing in crypto currencies make sure you know and understand the projects you invest in.
It is worth noting that the yield on 10 year Treasury is the basis for corporate bonds and therefore, has a significant impact on the market; in other words, higher 10 year yields higher borrowing costs.
Therefore, as Jerome Powell and FOMC try to keep the current low lending rates to support and stimulate the economy, the market is pricing increasing inflation expectations into the 10 year Treasuries and this is creating increasing tension in the bond markets (for those who are familiar with technical analysis, this means increased convexivity).
Conclusion:
TLDR: This means we are up for a rocky ride going forward and somewhat downward pressure on risk appetite. Therefore, investors need to be more selective than before with their investment choices.
If you are investing in crypto currencies make sure you know and understand the projects you invest in.