Interesting Divergence Post-Brexit Between Stocks And Treasury Bond Price Action!

SummaryBrexit: Stocks going up while treasury yields are going down?

Intuitively it’s not necessarily supposed to be that way!

The price action comparison between the stock market and the 10-year U.S. treasury yield since the Friday following the Brexit victory offers an interesting contrast and potential warning sign for investors!

Stocks

stock market

Since the huge move down post-Brexit on Monday June 27th the S&P 500 Index, or symbol SPX, has moved strongly higher from a low below 2,000 to its current level of approximately 2,088 that is not far-off from the pre-Brexit level of 2,103.

Bonds

treasury bond market

While stock prices have moved higher, the yield on the 10-year U.S. treasury is currently trading at a yield of approximately 1.46%, substantially lower than the post-Brexit Friday June 24th yield of 1.55% and pre-Brexit vote June 23rd yield of 1.75!

Question…Because investors will typically pile into U.S. treasuries during periods of angst in the so-called flight-to-quality trade, then why when the stock market is flashing the all-clear is the smart money in the bond market still signaling the yellow caution flag?

Conclusion

The disparity between the trading of these two financial markets is interesting to say the least. Are stocks rallying so hard due to end-of-quarter window dressing, wild investor enthusiasm or something else such as an expectation that the Fed will continue with its easy money policy?

And at the same time are bonds rallying and yields dropping due to some technical factors I’m not aware of or because the fear in the marketplace, despite the stock market signaling otherwise, is still very real?

As always it’s a wait and see for the rest of us! Stay tuned!

Michael Haltman is President of Hallmark Abstract Service in New York. He can be reached at mhaltman@hallmarkabstractllc.com or at 516.741.4723.

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