ZN ~ Monthly
I've shared this chart several times, including at the MoneyShow yesterday here in Las Vegas. However, this time around, I want to focus on the left-hand side of the chart, rather than the right. In the three years before the Global Financial Crisis, the 10-year note futures traded near the same level as it is trading today (a yield of 4% to 5%). The Fed had increased rates on the short end of the curve, and the long end was following. The stock market and the economy continued to hum along, seemingly unaffected by the higher rates. However, eventually, the higher rate environment and an overleveraged system began to reveal who was swimming naked. In subsequent years, the S&P 500 was shaved in half, and the Fed dropped interest rates to nearly zero (Treasuries rallied). We don't know if this will happen again, but we should be aware of the possibility. Markets often rhyme.