Though volatile, the S&P appears to have stagnated this quarter, while the bond market started the year at its lows and moved higher. The 10-year note yield, moving opposite the price, began January at 3 percent and has never returned to that level. But yields at the shorter end of the curve have made recent strides higher, with the five-year note yield rising to 1.7 percent Thursday, while the 10- and 30-year yields declined.
In fact, the spread between fives and 30s is the flattest in five years. The 30 year was yielding 3.52 percent Thursday, close to the key 3.50 percent level that it hasn't seen in eight months. Some traders worry a flatter curve could be negative for stocks, and that it's signaling a weaker economy. But they also say the bond market is catching up to a Fed that has been moving away from easy policy and shows no signs of turning back.
"It was easy to fall into the trap that short-term rates will never move. That was a fallacy," said George Goncalves, head of rate strategy at Nomura. But the long end of the curve has been tamer than expected by many in the markets.
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"It's interesting to see Treasurys outperform when everyone thought they were going to be under pressure because of tapering. It hurts equities more," said Goncalves.
The Fed last week proceeded to pare—or taper—another $10 billion from its monthly bond-buying program, but it was a comment from Fed Chair Janet Yellen that spurred the curve flattening move in bonds and shake out in stocks. She said the Fed could move to raise rates within six months of the end of its bond-buying program. While not surprising, no Fed official had actually articulated as clear a time frame before and that moved market expectations forward for a rate hike.
In the stock market, it added fuel to a selloff in the momentum names—biotechs and Internet stocks prominently among them. Some of the momentum plays bounced slightly Thursday, but others stayed under pressure and the corrections have been large in keeping with the outsized gains. Tesla, for instance, is now down 18 percent in the last four weeks, but it is still 37 percent higher since the beginning of the year.
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"Mostly people think of momentum names as stocks that are trading mostly on emotion, rather than fundamentals," said Randy Frederick, managing director of active trading and derivatives at Charles Schwab.