The five-year treasury yield hit a multi-year high relative to the average of the two- and the ten-year rates (the 5-year treasury is cheap on a relative basis). The chart below shows a measure of how “concave” the treasury curve has been over time (negative indicates the curve is convex).
|2 x (5yr yield) – (10yr yield) – (2yr yield)|
Given that the five-year tenor is sensitive to the trajectory of the Fed’s rate policy in the intermediate term, this is where we should see quite a bit of volatility (see post). We’ve come a long way from the days when the 5-year treasury was highly overpriced relative to the rest of the curve (see story from 2012) and the market was pricing in “perpetual” QE.
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We may be skating on very thin ice here, but the weight of the evidence still supports a weak bull case for the near to intermediate term. So I’m adding buy picks on the chart pick list and adjusting trailing stops to account for the risk.
These reports are not investment advice. They are for informational purposes, for a broad audience of investment and trading professionals, and other experienced investors and traders. Chart pick performance changes week to week and past performance may not indicate future results, as you know. Trading involves risk, and these reports assume that you understand those risks and manage them according to your tolerance.