In the latest battle over who does a better job of forecasting market movements, bonds are nearing a strong signal that a bear market for stocks is right around the bend.
Since hitting its most recent high yield of 4.01 percent on April 5, the 10-year Treasury bond has slid nearly 1.20 percentage points, a metric that signaled in 1990, 2000 and 2007 that a steep drop in stocks was only two months away, according to research from Gluskin Sheff strategist David Rosenberg.
With the 10-year yield at 2.82 percent in early Tuesday trading and the bond market still red-hot despite continued predictions of its demise, the big bear indicator is looming large.
“Declines of this magnitude very often presage the onset of bear markets and recessions,” Rosenberg says. “Typically, equities and then economists are late to the game…What is key to note is that the bond market is the tail that wags the stock market’s dog—it leads.”
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