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Speculation that inflation is not-so transitory and that mounting price pressures will force the Fed to act – via tapering asset purchases and bringing forward interest rate hike guidance – has sent Treasury yields snapping sharply higher.
This has weighed negatively on tech-heavy stock indices like the S&P 500 and Nasdaq, but less so on the Dow Jones.
I pointed out when the Nasdaq extended its slide as bond yields spiked in response to Fed taper fears that the selloff was starting to look a bit overdone.
On the other hand, softer Treasury yields stand to alleviate some of the downward pressure felt by stocks and could open the door for the Nasdaq to rebound back higher.
Not to mention, after more criticism from SEC Chair Gary Gensler during a congressional testimony, who said the “odds we’ll see a Bitcoin ETF approved in 2021 are very low,” there was another blow to Bitcoin demand.
Potential for a pullback by Bitcoin was hinted at by bearish divergence on the relative strength index for a while, as I previously pointed out.
Another sharp jump in Treasury yields could indicate that bond market investors are taking upside risks to inflation seriously and pricing in potential that the Fed might need to taper policy sooner than rather than later.
Conversely, softer Treasury yields would likely suggest that the Fed is doing its job keeping long term inflation expectations anchored and markets buying into the transitory narrative.
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