Economist's Insights

Today’s Trading Activity – Tech Weighs on Stocks, Treasury Curve Steepens the Most Since July as Longer Yields Jump

Nov 29, 2017

There was a substantial divergence in the paths of the three major U.S. equity indices on Wednesday as the Nasdaq tumbled 1.27% while the Dow bounced by 0.44%. The S&P split those performances by holding almost unchanged, slipping just 0.04% on the day. The uneven activity was consistent with traders who pointed to a rotation out of technology stocks – explains the weakness of the Nasdaq – and into financials and telecommunications companies. Progress on tax reform and industry-favorable remarks yesterday from Fed Chair Nominee Powell on financial regulations were credited as primary catalysts for the rotation. Technology has outpaced the other two sectors so far in 2017. Despite the mixed performance for equities, Treasury yields rose, led by a sharp increase in longer yields. Yields were already under pressure ahead of U.S. trading as a jump in U.K. yields had pushed sovereign yields up more broadly. A positive tone in Fed Chair Yellen’s opening statement (released ahead of time) for her testimony before a Congressional Economic Committee and a stronger-than-expected GDP revision added to the upward pressure for longer yields. Early-afternoon speculation that Senate Republicans had the votes needed to move forward and put their tax bill to a full vote gave yields a late boost and solidified the shift higher. On the day, the 2-year yield rose 1.6 bps, the 5-year yield added 4.6 bps, and the 10-year yield closed 6.1 bps higher; those represented the biggest single-day increases for the 5-year and 10-year yields in more than a month. As a result, the curve steepened more than 4 bps between 2s and 10s, the most in a single day since July.