BOND YIELDS SURGE TO NEW 2015 HIGH AS BOND PRICES PLUNGE -- UTILITIES AND REITS FALL WITH BOND PRICES -- BANKS AND LIFE INSURERS RISE WITH BOND YIELDS -- INSURANCE LEADERS ARE UNUM, METLIFE, AND PRUDENTIAL -- BANK SPDR HITS NEW SEVEN YEAR HIGH
BOND YIELDS REACH NEW 2015 HIGH... The surge in bond yields that started a month ago is accelerating to the upside. Chart 1 shows the 10-Year Treasury Note Yield climbing to the highest level since last November. Chart 2 shows the 30-Year T-Bond Yield doing the same. The driving force behind the surge in Treasury yields appears to be Europe. British and German 10-Year yields are also surging. The most immediate casualties are bond prices which are tumbling today. That's having a bullish impact on banks and insurance stocks which benefit from rising bond yields. But it's hurting dividend paying stocks like utilities and REITS which are among the day's weakest stocks.
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Chart 1
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Chart 2
BOND ETFS BREAK 200-DAY LINES... When bond yields rise, bond prices fall. And bond ETFs are falling hard today. Chart 3 shows the Barclays 7-10 Year T-Bond iShares (IEF) tumbling to the lowest level since December, and breaking its 200-day average in the process. Corporate bonds are being hit as well. Chart 4 shows the Investment Grade Corporate Bond iShares (LQD) falling to the lowest level since last November. The LQD is also trading well below its 200-day line which turned back its recent rally attempt. The surge in yields is also hurting bond proxies like utilities and REITS.
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Chart 3
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Chart 4
UTILITIES AND REITS TUMBLE WITH BOND PRICES... Several of my messages have explained the close correlation between falling bond prices and dividend-paying stocks like utilities and REITS. So it's no surprise to see both groups falling so hard today. Chart 5 shows the Utilities Sector SPDR (XLU) falling close to its May low on rising volume. The XLU is also trading below its 200-day average. Chart 6 shows the Dow Jones REIT ETF (RWR) falling below its 200-day average by the widest margin in more than a year. The five biggest percentage losers in the financial sector are REITS. Chart 7 shows AvalonBay Communities (AVB) tumbling -2.6% to a new to a six month low.
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Chart 5
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Chart 6
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Chart 7
BANKS AND LIFE INSURERS LEAD FINANCIALS HIGHER... I've written several times over the last month about the fact that rising bond yields (and a steeper yield curve) benefit banks and life insurers. Higher bond yields allow banks to charge more for loans. They also allow insurers to invest new premium income into higher yielding bonds. Not surprisingly, they're the two strongest groups in a strong financial sector.Three of the strongest life insurance stocks are shown below. Chart 8 shows Unum Group (UNM) rising to a nine-month high to lead the group higher. Chart 9 shows Metlife (MET) reaching a new six-month high. And Chart 10 shows Prudential Financial (PRU) doing the same. The green line in Chart 10 shows the close positive correlation between rising life insurers and the 10-Year T-Note yield. Full line insurance stocks are also rising.
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Chart 8
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Chart 9
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Chart 10
BANK SPDR HITS SEVEN-YEAR HIGH -- COMERICA LEADS... Chart 11 shows the KBW Bank SPDR (KBE) surging to a new seven-year high today. Its relative strength ratio (above chart) is rising as well. Notice how closely the upturn in bank performance parallels the upturn in bond yields (green line). The top bank percentage gainer is Comerica (CMA). Chart 12 shows CMA rising more than 2% to the highest level in nine months. Banks and life insurers are two of the best ways to benefit from rising bond yields.
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Chart 11
