Sign in
Become a MarketWatch member today
Tomi Kilgore
Feb. 10, 2011, 12:00 a.m. EST
View all Tomi Kilgore "º
"¹ Previous Column
Retailers in a precarious technical position
First Take "º
Dead money: Wall Street edition
By Tomi Kilgore
NEW YORK (MarketWatch) "” Wall Street investors shouldn't worry so much about the 10-year Treasury yield rising to nine-month highs.
Instead, they should embrace it as validation of what has been lifting stocks for the last several months: the belief that the economy is transitioning into a self-sustainable expansion.
Economic theory suggests rising Treasury yields are bad for stocks. They raise borrowing costs, which in turn crimps capital spending, hiring and home buying. In the real world, however, that doesn't happen until the economic expansion is mature and yields are much higher. When the economy is still in the adolescent stages, like it is now, yields and stocks tend to move in the same direction.
Fed Chairman Ben Bernanke faces U.S. House members publicly for the first time since Republicans took control. Video courtesy of Fox Business Network.
The yield on the benchmark 10-year Treasury note closed at 3.729% Tuesday, and has climbed 111 basis points since the end of October. Meanwhile, the S&P 500 Index /quotes/comstock/21z!i1:in\x (SPX 1,320, -0.52, -0.04%) closed Tuesday at a 2-1/2-year high and has climbed 12% since October.
The 10-year yield still has a lot more room to run. Until last Friday, the yield had been stuck in a narrow range of 3.25% to 3.565% for two months. Since that consolidation followed a sharp 0.95-point spike in just six weeks, technicians view the recent breakout as the confirmation of a "flag continuation pattern." A measured-move target for the breakout "” the height of the pattern added to the breakout point "” is around 4.5%.
Investors shouldn't fret too much even if that ambitious target is reached. LPL Financial chief market strategist Jeff Kleintop said stocks and bond yields historically have moved in the same direction when the 10-year yield was below 5%, as measured by a 52-week rolling correlation above zero. By the same measure, it wasn't until the yield was above 5% that stocks and yields moved in the opposite direction.
That's not to say the yield's rapid rise can't cause stocks to stagger. But that's not likely to happen for a while, and it probably won't hurt stocks very much or for very long.
At the beginning of the last economic recovery, the 10-year yield spiked from a low of 3.074% in June 2003 to a then 11-month high of 4.668% just two months later. Stocks eventually started pulling back, but not until March 2004. The S&P 500 lost a total of 8.6% in the five months following its March 2004 high, which isn't enough to constitute an official correction.
/quotes/comstock/31*!ust10y UST10Y 3.71, +0.04, +0.98% /quotes/comstock/21z!i1:in\x SPX 1,320, -0.52, -0.04%
High Frequency Economics chief U.S economist Ian Shepherdson said recently that given what he sees as a normal lag in normal cycles, he doesn't think the rise in yields off the October lows will impact economic growth until the end of the year. Based on the Wall Street rule of thumb that the stock market moves three to six months ahead of the economy, the rise in yields wouldn't start hurting stocks until June at the earliest.
Perfect timing, because that's when the Federal Reserve's current Treasury buying program is scheduled to end.
Basically, if stocks start pulling back in the near term, investors shouldn't blame rising yields. In the current market environment, what investors should worry about more is if the economy falters to the point that yields start falling again.
Tomi Kilgore writes Taking Stock, a column featuring insightful analysis of equity-related topics around the world. This column originally appeared on Dow Jones Newswires.
Add Comment › · Recommend · Post: Alert Email Print More Tomi Kilgore Feb. 3, 2011 Retailers in a precarious technical position Jan. 7, 2011 Prepare for pullback in stocks Dec. 23, 2010 Stocks are overbought, but that can be a good sign Dec. 2, 2010 Dow transports bust out; industrials should follow Nov. 12, 2010 Cisco's bounce off support should be limited Explore related topics S&P 500 Index U.S. Treasury 10 Year Comments Screener First Take Dead money: Wall Street edition
Big-time entertainment stars and common folk aren't the only ones with small fortunes due to them in unclaimed funds. Wall Street's power elite who brought you bailouts and economic havoc have money on the table too, writes David Weidner.
11:41 a.m. Today11:41 a.m. Feb. 10, 2011
Most Popular Most readMost commented The most famous stars who have lost their money U.S. stock futures point lower; Cisco set to fall Cisco shares hit on results, downgrades The bull market is here to stay Alcatel-Lucent posts jump in profit; shares rally The best laid plans ... U.S. stock futures point lower; Cisco set to fall Wealth of black families has disappeared Egypt's Mubarak may step down: reports Cisco shares hit on results, downgrades Find a Broker Partner Center » MarketWatch's Latest Tweets"U.S. runs $50 billion budget deficit in January http://on.mktw.net/dZLj30" 2:02 p.m. EST, Feb. 10, 2011 from MarketWatch
"#Cisco shares hit on results, downgrades http://bit.ly/fwjpg3" 1:54 p.m. EST, Feb. 10, 2011 from MarketWatch
"RT @TomBemis: Jobs, Jolie and Jagger on who's who of dead money http://on.mktw.net/epeD9Z" 1:27 p.m. EST, Feb. 10, 2011 from MarketWatch
"RT @TomBemis: Why states have $33 billion of your lost money http://on.mktw.net/gnmNGo" 12:59 p.m. EST, Feb. 10, 2011 from MarketWatch
"Mortgage rates jump to 10-month high http://bit.ly/gUW5Uo" 12:38 p.m. EST, Feb. 10, 2011 from MarketWatch
/quotes/comstock/21z!i1:in\x S&P 500 Index (SPX) /marketstate/country/US The market is open2:48:19 pm The market is closed2:48:19 pm 1,320 Change -0.52 -0.04% Volume 0.00 Real time quotes var embeddedchart124732823Chart = new EmbeddedChart('#embeddedchart124732823', NormalChartStyleNoDecimals, 190, 90, '1dy', '5mi', null, null, null, 'US:SPX'); jQuery.data($('#embeddedchart124732823').get(0), 'embeddedchart', embeddedchart124732823Chart); Add to portfolio SPX Find a Broker Create alert Featured Commentary » Next: Ruth Mantell's Diary of a Recession BabyDiary of a Recession Baby
Surviving a spouse's long absence
Next: Darrell Delamaide's Political CapitalPolitical Capital
Obama urges business to do their part
Next: Tomi Kilgore
Investors shouldn't fret about yield rise
Next: Therese Poletti's Tech TalesTech Tales
Remembering DEC founder Ken Olsen
Next: Jennifer OpenshawOn Personal Finance
Financial fitness is best Valentine's gift
Next: Jon Friedman's Media WebMedia Web
Arianna Huffington and AOL: culture clash
Next: Mark HulbertOn the Markets
A new all-time market high? Don't laugh.
Next: Jennifer Waters' Consumer ConfidentialConsumer Confidential
How to claim billions in cash waiting for you
Next: Peter BrimelowWall Street Irregulars
End coming to era of low interest rates?
Next: Jeff ReevesStrength in Numbers
Eleven signs the bull market is here to stay
Next: Robert Powell's Your PortfolioYour Portfolio
Protect yourself against currency risk
Next: Lisa Twaronite's This Week in JapanThis Week in Japan
Japan watching China's inflation data
More BigCharts Virtual Stock Exchange WSJ Asia WSJ Europe WSJ Americas WSJ Chinese Financial News Online SEARCH 2:48 PM EST February 10, 2011 /marketstate/country/us New York Open /marketstate/country/uk London Closed /marketstate/country/jp Tokyo Holiday /marketstate/country/us /marketstate/country/uk /marketstate/country/jp View All Latest News /news/latest8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764562:44pQuiet launch for Verizon iPhone
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764552:43pBlockbuster sale an alternative to bankruptcy: WSJ
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764542:42pBlockbuster could seek OK from bankruptcy judge
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764532:42pBREAKING
Blockbuster moves to put itself up for sale: WSJ
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764522:37pHow to claim billions in cash just waiting for you
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764502:37pBREAKING
Crude oil closes 2 cents higher at $86.73 a barrel
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764492:28pGold comes off lows on talk of Mubarak resignation
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764472:18pDollar pares gains against the euro
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764452:07pU.S. runs $50 billion budget deficit in January
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764442:05pFed plans to buy back $97 bln in Treasurys
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764432:04pThursday's biggest gaining and declining stocks
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764412:03pFed plans to buy back $97 bln in Treasurys
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764402:02pGold off lows after Mubarak resignation reports
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764392:00pBREAKING
U.S. runs $50 billion budget deficit in January
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764382:00pU.S. runs $50 billion budget deficit in January
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764371:57pNew iPhone design cuts costs, teardown finds
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764341:51pObama backs 'orderly' move to democracy in Egypt
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764331:49pReal Madrid, Barcelona top soccer's revenues list
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764321:45pBREAKING
Gold closes 0.2% lower at $1,362.50/oz
8c077dc4-5ad2-4f73-b9c3-a381c5fece05:2764291:39pTreasurys stay lower after 30-year auction
Loading more headlines... dow /quotes/comstock/10w!i:dji/delayed 12,216 -23.43 -0.19% nasdaq /quotes/comstock/10y!i:comp 2,789 -0.13 0.00% s&p 500 /quotes/comstock/21z!i1:in\x 1,320 -0.52 -0.04% Kiosk 1268356500000 1268413200000Political Watch
Arizona's Kyl retiring Jon Kyl, the second highest-ranking senator in the Republican Party and a leading voice on foreign policy, won't run for re-election in Arizona in 2012. 127495 1240992000000 1240992000000Community
Five years ago I found $140 for me and $390 for my sister, which she no doubt invested in shoes. "” TheAlphaWolf Comment from the story: Why states have $33 billion of your lost money | View comments /conga/kiosk/community.html 127476 1247594400000 1247644800000Corporate Governance
Wall St. pay czar faulted Key oversight group criticizes Treasury Department pay czar Kenneth Feinberg for not negotiating more reimbursements of the pay of bailed-out bank executives. 127479 1267484400000 1267542000000Europe
Keeping spirits up Results from Diageo show European spirits makers may have to look outside their home turf for growth. "¢ Diageo stock falls after results 127512 1242028800000 1242676800000Investing
ROBERT POWELL'S YOUR PORTFOLIO Defend against currency risk Combining assets with low correlations may help boost the risk-adjusted returns of your portfolio. "¢ What Egypt's woes mean to you /conga/kiosk/investing.html 127462 1245715200000 1277337600000Real Estate
The eye of the storm The foreclosure rate dipped in January, but 2011 could still be a record year for foreclosures. "¢ RealtyTrac: Another spike expected "¢ Cities with the highest foreclosure activity 127460 1251763200000 1251763200000Commentary
JENNIFER OPENSHAW Love and money Before this Valentine's Day, you and your sweetheart should ensure that you're on a firm financial footing. 127464 1251936000000 1251936000000Global Investing
The rewards of risk The return of political risk can also present a buying opportunity. "¢ Don't bail at first whiff of worry "¢ Political fears weigh on Thai stocks /conga/kiosk/wildcard2.html 127473 1254823200000 1254823200000Fantasy Earnings Trader
Makeup play pays off Weekly winner in Fantasy Earnings Trader bets big on Estee Lauder, while MarketWatch Editor-in-Chief David Callaway tops the pros. 126461 MarketWatch.com Site Index Topics Help Feedback Newsroom Roster Media Archive Premium Products Mobile Podcasts RSS MarketWatch on Facebook MarketWatch on Twitter Company Info Code of Conduct Corrections Advertising Media Kit Advertise Locally License our Content WSJ.com Barron's Online BigCharts Virtual Stock Exchange All Things Digital MarketWatch Community Financial News Online WSJ.com Small Business FINS: Finance, IT jobs, Sales jobsCopyright © 2011 MarketWatch, Inc. All rights reserved. By using this site, you agree to the Terms of Service and Privacy Policy.
Intraday Data provided by Thomson Reuters and subject to terms of use. Historical and current end-of-day data provided by Thomson Reuters. Intraday data delayed per exchange requirements. Dow Jones Indexes (SM) from Dow Jones & Company, Inc. All quotes are in local exchange time. Real time last sale data provided by NASDAQ. More information on NASDAQ traded symbols and their current financial status. Intraday data delayed 15 minutes for Nasdaq, and 20 minutes for other exchanges. Dow Jones Indexes(SM) from Dow Jones & Company, Inc. SEHK intraday data is provided by Comstock and is at least 60-minutes delayed. All quotes are in local exchange time.
MarketsMarkets Data is loading... QuotesQuotes Data is loading... My PortfolioMy Portfolio Data is loading... My AlertsMy Alerts Data is loading... CommunityCommunity HOT PICKS MY PICKS MY GROUPS Data is loading...ALERT:
MarketWatch Top Stories Link to MarketWatch's Slice. 15 $(".bgCurrencyFormatting").data("bgFormat", { last: "#,###.0000", change: "#,###.0000", percentChange: "#,###.0000%" }); if (typeof s != "undefined") { s.channel = "MarketWatch"; s.server = "www.marketwatch.com"; s.prop1 = "Article"; s.prop2 = "MW_Commentary"; s.prop5 = "http://www.marketwatch.com/story/investors-shouldnt-fret-about-the-yield-rise-2011-02-10"; s.prop6 = "http://www.marketwatch.com/story/investors-shouldnt-fret-about-the-yield-rise-2011-02-10"; s.prop7 = "off"; s.eVar11 = "MarketWatch"; s.pageName = "MW_Article_Tomi Kilgore_F0826F32-348E-11E0-B3F5-00212804637C"; s.prop3 = "MW_Article_Tomi Kilgore"; s.prop4 = "MW_article_Tomi Kilgore_Investors shouldn't fret about the yield rise"; s.prop8 = "MarketWatch.com"; s.prop19 = "article"; s.prop20 = "F0826F32-348E-11E0-B3F5-00212804637C"; s.prop21 = "Tomi Kilgore"; s.prop22 = "MW_Article_Tomi Kilgore"; s.prop23 = "2/10/2011 12:00:35 AM"; s.prop26 = "MW_Article_Tomi Kilgore"; s.prop38 = "Services/Consulting|Services and Consulting|Opinion|Commentary|Commodities||US"; s.hier1 = "MarketWatch,Article,MW_Commentary,MW_Article_Tomi Kilgore,MW_Article_Tomi Kilgore,MW_Article_Tomi Kilgore,F0826F32-348E-11E0-B3F5-00212804637C,MW_article_Tomi Kilgore_Investors shouldn't fret about the yield rise,http://www.marketwatch.com/story/investors-shouldnt-fret-about-the-yield-rise-2011-02-10"; s.hier2 = "MarketWatch,article,MW_Commentary,MW_Article_Tomi Kilgore"; s.hier3 = "MarketWatch,MW_Commentary,MW_Article_Tomi Kilgore,MW_Article_Tomi Kilgore_F0826F32-348E-11E0-B3F5-00212804637C"; s.hier4 = "MarketWatch,MW_Commentary,Article"; s.events = "event12,event18"; s.prop9 = "free"; s.prop10 = ""; s.prop11 = ""; s.prop13 = "commentary_story"; s.prop25 = ""; s.prop27 = "nomem"; s.eVar4 = "MW_Article_Tomi Kilgore_F0826F32-348E-11E0-B3F5-00212804637C"; s.eVar31 = "Thursday"; s.eVar32 = "13:00"; /************* DO NOT ALTER ANYTHING BELOW THIS LINE ! **************/ var s_code=s.t();if(s_code)document.write(s_code) }//--> DM_cat("MarketWatch > Article > MW_Commentary > MW_Article_Tomi Kilgore"); DM_tag(); document.write(''); (function () { var d = new Image(1, 1); d.onerror = d.onload = function () { d.onerror = d.onload = null; }; d.src = ["//secure-us.imrworldwide.com/cgi-bin/m?ci=us-403743h&cg=0&cc=1&si=", escape(window.location.href), "&rp=", escape(document.referrer), "&ts=compact&rnd=", (new Date()).getTime()].join(''); })(); var _bgProxyUrl = "/bgproxy/bgproxy/forward"; $(function() { BlueGrass.Runtime.openConnection({}, function(connection, type) { if (type == "connect") { BlueGrass.MarketState.setup(); BlueGrass.Quote.setup(); } }); }); $(function() { var ajaxUrl = "/story/story"; MarketWatch.Story.InitializeStory(ajaxUrl, "http://system.marketwatch.com/newscloud/docguid/F0826F32-348E-11E0-B3F5-00212804637C", "Investors shouldn't fret about the yield rise", "http://www.marketwatch.com/story/investors-shouldnt-fret-about-the-yield-rise-2011-02-10"); }); window.fbAsyncInit = function() { FB.init({ appId: "283204329838", cookie: true, // these two are not required for partners that status: true, // only rely on stk plugins and don't use connect xfbml: true }); FB.XFBML.parse(); setTimeout(function() { $('#fblike').show(); }, 500); }; (function() { var e = document.createElement('script'); e.async = true; e.src = document.location.protocol + '//connect.facebook.net/en_US/all.js'; document.getElementById('fb-root').appendChild(e); }()); //$(document).ready(function() { var storywidth = $('#mainstory').width(); var maxwidth = storywidth; $('#maincontent pre').each(function(index,value) { var thiswidth = $(value).width(); if (thiswidth > maxwidth) maxwidth = thiswidth; }); var offset = maxwidth - storywidth; if (offset > 0) { var margin = 13; var blanketwidth = $('#blanket').width(); var contentwidth = $('#maincontent').width(); $('#blanket').width(blanketwidth + offset + margin); $('#maincontent').width(contentwidth + offset + margin); $('#mainstory').width(storywidth + offset + margin); } //}); window.fbAsyncInit = function() { FB.init({ appId: "283204329838", cookie: true, // these two are not required for partners that status: true, // only rely on stk plugins and don't use connect xfbml: true }); FB.XFBML.parse(); setTimeout(function() { $('#fblike').show(); }, 500); }; (function() { var e = document.createElement('script'); e.async = true; e.src = document.location.protocol + '//connect.facebook.net/en_US/all.js'; document.getElementById('fb-root').appendChild(e); }()); $(document).ready(function() { $("#commentarycarousel").mouseover(function(e) { e.preventDefault(); $(this).unbind(); MarketWatch.Panels.UpdateCarousel({ carouselDivId: 'commentarycarousel', carouselSize : 5}); }); }); $(function() { }); if(MarketWatch.Member != undefined && MarketWatch.Member.setUserLevel) { MarketWatch.Member.setUserLevel(MarketWatch.Member.UserLevel.unknown); } $(document).ready(function() { jQuery.validator.setDefaults({ highlight: function(element, errorClass) { $(element).addClass(errorClass); $(element).prev().addClass(errorClass); }, unhighlight: function(element, errorClass) { $(element).removeClass(errorClass); $(element).prev().removeClass(errorClass); } }); jQuery.validator.addMethod("checkUserName", function(value) { var userNameRX = /^[a-zA-Z0-9]+[a-zA-Z0-9]+[a-zA-Z0-9]$/; return userNameRX.test(value); }, ""); $("#registerForm").validate({ rules: { UserName : { required: true, rangelength: [4, 20], checkUserName:true }, ExistingEmailAddress: { required: true, email: true }, ConfirmExistingEmailAddress: { required: true, equalTo: "#ExistingEmailAddress", email: true } }, errorPlacement: function(error, element) { } }); $("#registerForm #username").focus(); if(MarketWatch.Member && MarketWatch.Member.init) { MarketWatch.Member.init(); } });Email address or display name
Password
Read Full Article »