The breakdown in the 10-year yield is an important sell signal for those who are invested in riskier assets, says Richard Ross, global technical analyst at Auerbach Grayson. He expects bond prices to continue to move higher and rates to move lower as risk comes off and equities are sold in the US.
Below is an edited transcript of the interview with CNBC-TV18
Q: The jobs data, while having a negative impact on markets today, will mean that any unwinding by the Fed is still very-very far away. That might boost the markets in a few days to come - are you reading that at all?
A: I wouldn't necessarily jump to that conclusion. The Fed has been extremely accommodative, regardless of what data comes down the pipe. We have been in this Goldilocks scenario where it is not too hot and it is not too cold now for the past four years. That has kept this tailwind which has pushed equities higher. All of that being said, let us not forget the technical side of the market. We have an event since November which a correction has been long overdue in terms of price and momentum.
We are now down just 2 percent off the top the S&P 500. I think that correction was larger, so once again we have the fundamental side of the market, which is things like the data that is being released today and then the technical realities of the marketplace which are stocks and sectors and indices which had come too far, too fast over the past six months and perhaps over the past four years. We are already seeing those signs of technical erosion.
Also read: S&P posts 2013's worst weekly drop on jobs data
Q: If you have been watching the 10-year yield, the last two weeks has been a clear indication that risk is moving away from this market and money is moving into bonds. Yet many analysts have been saying this is only a consolidation. Are we in full-fledged correction territory and does that mean that we continue to decline for some more time to come?
A: I think that is a fantastic point. Yields peaked back in the middle of March, which gave you a little bit of a tail that we might have some rough selling ahead in the equity markets. But of course, equities continue to move higher as the yields have done for the past six months as we have been saying.
I think this breakdown in the 10-year yield now back below the 200 DMA for the first time this year is an important sell signal for riskier assets. I would expect bond prices to continue to move higher and those rates to continue to move lower as risk comes off and equities are sold here in the US.