10-year bond levels and the next step for the stock market, says Jim Bianco

10-year bond levels and the next step for the stock market, says Jim Bianco

The S&P 500 ended its worst day since May on Monday, as China’s Evergrande debt crisis, seasonal weakness and an impending deadline to raise the debt limit intensified its September collapse.

These worries have contributed to the market malaise, but Jim Bianco, president of Bianco Research, says the next market decision comes down to a central theme: interest rates.

He told CNBC’s “Trading Nation” on Monday that he was looking to the treasury market to find out whether this sale would be bad or just a failure.

“If you have this correction and interest rates remain stable or maybe even tend to rise, then I think that will be a red flag for investors. If the bond market behaves like this, you should see it in the next few days. This is to be expected where interest rates fall. Stock prices, so I think you’ll breathe a little sigh of relief as we probably surrender, ”he said.

He said the reduction in Treasury yields would suggest a flight to quality offerings, meaning investors are racking up bonds against stocks as the S&P 500 falls. A drop to the 1.25% level in 10 years will bring a sense of relief, he added.

On the flip side, if the 10-year rises to 1.38% or more, that would suggest that investors are worried about “lingering inflation” and a Federal Reserve being forced to go faster than many believe. ‘had planned. Fears of a Fed cut loom over Wall Street as a threat, even as stocks hit record highs.

The 10-year yield in the United States was trading at around 1.31% on Monday. It had fallen to 1.13% in early August.

While the Fed has said it sees the rise in inflation as fleeting, Bianco sees signs that it could last longer. For example, without reopening components of the Consumer Price Index such as airline tickets and restaurants, he says inflation is too high.

“By reopening it all, you still have an inflation rate of around 3.5%, which is pretty high even for the Federal Reserve and if the market starts to believe that the inflation rate is going to be around 3%. , maybe a little. A little more, maybe a little less, it is unacceptable for a 10 years of 1.3% and that could pose real problems for the bond market “, he declared .

The Federal Open Market Committee is scheduled to begin its two-day meeting on Tuesday. A tariff decision will be announced Wednesday afternoon.

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