TREASURY YIELDS FALL TO THREE-YEAR LOW AS PRICES SURGE -- THAT'S REALLY HURTING BANKS AND LIFE INSURERS -- PRUDENTIAL TUMBLES -- MONEY CONTINUES TO FLOW INTO TREASURY BONDS, GOLD, AND THE JAPANESE YEN -- DOW ON VERGE OF BREAKDOWN
TREASURY YIELDS FALL TO THREE-YEAR ... The rapid descent in global bond yields continues uninterrupted. The 10-Year Japanese bond yield recently fell into negative territory for the first time in its history. That's helping drive sovereign bond yields lower everywhere else. Chart 1 shows the 10-Year Treasury Yield falling below 1.60% for the first time in three years. That's pushing Treasury bond prices sharply higher in a continuing flight to safety as stock prices weaken.
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Chart 1
FALLING BOND YIELDS HURT BANKS AND INSURERS... Previous messages have explained that falling bond yields are especially hurtful to banks and life insurers. And they're acting accordingly today. Chart 2 shows the KBW Bank SPDR (KBE) falling another 3% today to the lowest level in two years. Life insurers are also among the weakest of the financial group. Chart 3 shows Prudential Financial (PRU) falling -8% to the lowest level in almost three years. Financial stocks are the day's weakest sector. And that's mainly due to falling bond yields.
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Chart 2
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Chart 3
GOLD STOCKS AND THE YEN ARE SURGING... Money continues to flow into the traditional safe havens of Treasury bonds, gold assets, and the Japanese yen. Chart 4 shows the Market Vectors Gold Miners ETF (GDX) gaining 6% to the highest level in eight months. Falling bond yields are usually good for gold, as are falling stock prices. A falling dollar is also good for gold. Most of the selling in the dollar is coming versus the Japanese yen which is another traditional safe haven. Chart 5 shows the Japanese yen soaring to the highest level in a year. That's helping push the U.S. Dollar index to a four-month low. The surging yen is also taking a heavy toll on Japanese stocks.
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Chart 4
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Chart 5
DOW THREATENS LOWS... Yesterday's message showed the Dow holding up slightly better than other stock indexes over the last month because of its more defensive qualities. It also explained that was actually a sign of a weak market. Because of its narrow focus and blue chip qualities, the Dow is usually the last one to roll over to the downside. And it may be on the verge of doing that today. Chart 6 shows the Dow Jones Industrial Average bearing down on its January and August intra-day lows. A close below those two previous lows would be a bearish development. That fact that the Nasdaq and S&P 500 have already done so increases the odds for the Dow to follow them lower. Today's 2% decline makes the Dow one of the day's weakest indexes. Big drops in financial giants like Goldman Sachs and JP Morgan are one of the big reasons why.
