US rates soar as markets brace for possible rate hike in March

US Rates, S&P 500, Nasdaq 100 Talking Points:

  • Yesterday i saw both the S&P 500 and the Nasdaq 100 rebound strongly support following massive sales at the start of the session.
  • US rates continue to climb with an even stronger push on the shorter end of the curve. This is a similar dynamic to what was shown from late 2017 to late 2018. This scenario led to the Fed pivoting from a bullish position in 2018 to a cutting phase in 2019.
  • Tomorrow brings CPI outside the US awaiting data printing with a 7-handle handle.
  • The analysis contained in the article is based on Price action and graphic training. To learn more about price action or chart patterns, check out our DailyFX Education section.

Tomorrow the CPI will roll out of the United States and markets will enter this release expecting headline inflation to exceed 7%. Recently, this higher impact of inflation has been taken into account in global markets with intense movement on the short end of the Treasury yield curve.

The yield on 2-year Treasury bills is 0.94%, against a minimum of 0.45% at the end of November. That’s a massive jump in no time, and the 49 basis points added to 2-year rates here even eclipse that of the 10-year bond yield jump.

Yield on 2-year U.S. Treasuries

Graphic prepared by James stanley; US02y on Tradingview

The yield on 10-year notes hit a new high last week after the NFP, and it is the highest rate seen since the pandemic entered the equation. Still, the yield jump from the December low to the recent high is 46.5 basis points, lower than the 2-year note examined above.

Yield on 10-year U.S. Treasuries

Yield on 10-year treasury bills

Graphic prepared by James stanley; TNX on Tradingview

The 30-year Treasury bond saw a similar rise in yields but, again, less than that seen on the short end of the curve with the 2-year note. After hitting a December low of 1.678%, yields hit a new high of 2.151% last week. This is a difference of 48 basis points, less than that of the 2 years but a little more than what has been observed so far in the 10 years.

Yield on 30-year Treasury bonds

Yield on 30-year Treasury bonds

Graphic prepared by James stanley; TYX on Tradingview

Compression of the Treasury yield curve

As yields continued to rise with more emphasis on the short end of the curve, that momentum began to trickle down to stocks as well.

The rate-sensitive Nasdaq 100 has been particularly attractive lately. After spending the entirety of last year in an uptrend channel that started around the 2020 U.S. election, prices have already started to threaten a breakout.

Yesterday saw the first test under this channel for over a year. Prices quickly moved back up above, but this can be a situation where the seal is now broken and the bears can go further here. As seen last week, Continued rise in yields may maintain focus on the decline of the Nasdaq 100 Index.

Nasdaq 100 Daily Price Chart

Nasdaq 100 Daily Price Chart

Graphic prepared by James stanley; Nasdaq 100 on Tradingview

S&P 500

The S&P has been equally fragile but so far has held up somewhat better than the Nasdaq 100. There is however major support which was tested again yesterday around the 4600 grip. This has so far led to a rebound, but sellers are back on the prowl this morning and as markets brace for a more hawkish Fed and maybe even a rate hike in March, there is also some downside potential here. The next significant support point is around 4500 with another point between that level and current prices around 4550. If the S&P cannot hold 4500, a bigger selloff could develop very quickly.

S&P 500 Four-Hour Price Chart

Four Hour SPX ES SPY Price Chart

Graphic prepared by James stanley; S&P 500 on Tradingview

— Written by James stanley, Senior strategist for DailyFX.com

Contact and follow James on Twitter: @JStanleyFX

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