Trader Alert: Stock Prices Could Come Down Very Fast And Furious – It’s All About Interest Rates, And It Keeps Moving Higher

Bond Yields Creep Closer to the Pain Threshold

The scale of the sell-off in U.S. government bonds has taken market watchers by surprise and yields are now fast approaching a “pain threshold” that could make the Federal Reserve think twice about unwinding its monetary stimulus too soon, analysts say.

Yields on benchmark 10-year U.S. Treasurys soared after Friday’s stronger-than-expected U.S. non-farm payrolls data heightened fears among bond investors that an unwinding of the Fed’s monetary stimulus could come sooner rather than later.

(Read More: One Eye on Earnings, the Other on Bonds)

“I think 3 percent is the key threshold, but if you’d asked me a few weeks ago, I would have said 2.5 percent – it keeps moving higher and yet there doesn’t seem to be an imminent impact on the U.S. economy,” Frederic Neumann, co-head of Asian Economics Research at HSBC Bank told CNBC Asia’s “Squawk Box.”

“But 3 percent is likely to be, not just a material threshold, but a psychological line in the sand for [Fed Chairman Ben] Bernanke at the moment,” he added.

Very Scary Short-Term Charts

United States Government Bonds

GOLDMAN: 3.0% On The 10-Year Next Year, And 4.0% By 2016!!

What Bernanke Could Say This Week To Really Spook The Market

The big show this week will be a speech on Wednesday from Fed Chair Ben Bernanke.

It’s titled: “The First 100 Years of the Federal Reserve: The Policy Record, Lessons Learned, and Prospects for the Future” and there’s going to be a Q&A.

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So he could really talk about anything, including, perhaps, his own future (fingers crossed).

Fedspeak is always a market obsession, but lately that obsession has been turned to 11, given all of the concern about slowing the pace of QE, and how far we are from the first rate hike. Lately the “ZIRP4EVA” crowd has gone pretty silent, and markets are pricing in the possibility of a rate hike sometime in late 2014, in part due to shifts in the Fed’s language, and in part because the pace of job creation has accelerated. In recent months, the economy has been averaging nearly 200K jobs created, which is a nice step up from the approximately 150K pace from months’ previous.

So Bernanke’s speech on Wednesday will be watched ultra-closely.

What will he say?

Citi’s Steven Englander has some thoughts about what he could say that would spook markets the most.

A hawkish Bernanke is much less likely than a dovish one, Hawkish comments could take the form of:

·         The Fed is not surprised or concerned by the bond market moves
·         The economy is outperforming their expectations
·         The Fed does not think the bond market moves will affect activity much

Most likely his comments take the form  of ‘all according to plan’ and ‘market way too aggressive in expecting FOMC hikes’ which will have be supportive for bond markets and USD negative, but have a half-life of impact until the next major data point.(retail sales on July 15).

At his last press conference, a comment about not being concerned by bond market moves was what really spooked the markets and sent yields soaring.
Read more:

Key Macro Events In The Coming Week

Debt Crisis: US Borrowing Costs Now Running Right Around $360 Billion A Year


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