Don’t be fooled; the 10-year yield is the chart and market indicator to monitor. 

The Fed is no longer around to support notes and bonds, the ex-post real yield on the 10-year is still below -3.0 percent, and the spike in yields acts as a double hammer to stocks. 

First, through the economic effect of higher borrowing costs, and second, through the valuation effect as a higher interest rate to discount profits lowers stock valuations. 

The U.S. 10-year yield is the most important price in the world and has been highly distorted for many years.  It has been stunning to watch the markets focus on nominal yields rather than real yields, as they fail to realize how the coupon and TIPs market has been managed for many years.  A classic case of recency and confirmation bias. 

Stay tuned. 

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