Significant: Inverse Relationshionship Between Bonds, Stocks Severed

Today, we are seeing interest rates on the 10-year US Treasuries rise, even while the stock indexes have moved down. This is significant! Note in the chart (daily candles, above) that following the doji candle on January 23rd, bonds prices have been lower, and the Klinger Volume indicator (lower panel) is showing heavy selling of US Government bonds (see the red line in the subgraph, indicating significant selling volume). This will drive interest rates higher, especially if this phenomenon accelerates!

For several weeks or months, bonds prices have risen inversely and in near lock step with falling stock prices. This occurred as funds flowing out of stocks sought safety in US treasuries, which are considered one of the world's safest investments. This inverse relationship appears to have reached its apex today, and suddenly reversed. Bonds are selling off simultaneously with the weak stock market. The next few weeks will determine whether this is a short-term event, or a long-term trend.

Are the bond vigilantes back?

It may be that investors are beginning to tire of lower interest rates, even in the face of greater risk. The bond vigilantes are pricing in higher interest rates, demanding better returns for their capital. They are seeing greater risk in US Government debt, and the greater likelihood of inflation. These are typically the two factors (risk, inflation) that influence interest rates to move higher in the bond markets. A third factor -- greater returns available elsewhere -- may also be in play here.