After seeing interest rates rise Lots, From the bottom of the corona crash, people wonder, “What if they keep rising?”
But I think: Fall again?? “
You see, a 10-year technical analysis of Treasury interest rates suggests that the recent rise has gone too far and too fast … and interest rates are likely to recede in the coming months.
Look at the chart …
Treasury interest rates for 10 years: bearish divergence
One is that the 10-year rate is well above both the 50-day and 200-day moving averages. We say it is “stretched”.
In addition, a bearish divergence is forming.This means that interest rates have continued to rise since the end of February, but indicators of that momentum are beginning to show trends instead. under..
Due to these differences, prices (read here: interest rates) usually fall behind the momentum.
Finally, the level between 1.5% and 1.9% on the chart is marked with a dotted red line. This is a 10-year resistance zone. If If the rate exceeds this level, it may take one or more attempts to mount the breakout.
Anyway, you wouldn’t be surprised if the 10-year rate drops to 1.2% in the coming months.
Impact of interest rates on utility stocks
Utility stocks are usually Rate of decline Environment for two reasons:
- The cost of capital is lower, resulting in more affordable capital investment and higher returns.
- Perhaps more importantly, utility stocks are often considered a “bond substitute” from the perspective of yield-seeking investors. And as bond yields fall, utility stocks pay dividend yields that become even more attractive.
This is an ETF for the major US equity sectors and an iShares 7-10 year government bond ETF (Nasdaq: IEF):
7-10 Sector ETF Yields Compared to Government Bonds
As you can see Utility Select Sector SPDR Fund (NYSE: XLU). Pay yield 3 times Greater iShares 7-10 Year Government Bond ETF (Nasdaq: IEF)...
For yield-seeking investors, XLU is a better option today. The benefits will be significant if bond rates are pulled back in the coming months.
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