Stocks are enjoying a bit of a bounce today, but we’re leery of what’s in store. Yesterday’s trading was about as odd as it gets. News that Japan’s economy is just barely growing with a 0.4% GDP reading set the stage, putting deflation front and center in traders’ minds—as if they needed a reminder after the Federal Reserve’s most recent policy statement and the excess of poor economic data that has been rolling in.
The bond market has had the strongest reaction with 30-year Treasury bonds gaining 2 ½ percent, pushing yields down to their lowest level in 16 months. The same can be seen across the long end of the credit spectrum.
Despite the slow pace of economic activity and the scent of deflation in the air, commodities are also finding willing buyers. Industrial metals such as copper, nickel and zinc have moved higher. Likewise, gold is catching a bid, having rallied to just shy of $1,225 the ounce—less than 3 percent from its nominal high.
But the real kicker has been the performance of stocks in light of the goings on in the bond market. Granted stocks are somewhat oversold on a short-term basis, but typically when bonds are rising so strongly it’s occurring as investors are fleeing riskier assets such as stocks.
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