US 10-yrs @3%. What's Next?

At the opening of the American trading session, the main US stock indexes rose. Thus, Nasdaq Composite rose by 31.06 points (0.44%) at the beginning of the American session, the S&P500 – by 10.40 points (0.39%), DJIA started trading with an increase of 0.28% (69.02 points).

The growth of the indices was facilitated by some stabilization of prices for US government bonds, as well as positive macro statistics published at the beginning of the American trading session.

After Monday, the yield on 10-year bonds reached 2.998%, closely approaching the psychological level of 3%, from the opening of the trading day on Tuesday; it fell to the level of 2.957%. On the eve of a number of major US companies, such as United Technologies, Verizon, Coca-Cola, reported strong financial results in Q1, and positive macro data came from the US. So, the index of consumer confidence in April was 128.7 against 127 in March (the forecast was 125.6). Americans have become more optimistic about the current economic conditions, and also raised their expectations about the future growth of the economy. The Conference Board report, published on Tuesday, was another indication that the US economy remains strong.

And yet, the main US stock indexes fell on the results of the trading day on Tuesday. The yield of 10-year US Treasury bonds at the end of the trading day exceeded the psychological level of 3.0% for a short time.

Investors fear that if the yield of 10-year government bonds this week will be fixed above the level of 3.0%, then a new wave of sales may start on the US stock market, which will provoke a drop on other world stock exchanges.

In the US debt market, the rates of mortgage and bank loans are tied to the yield of 10-year securities. A sharp increase in the yield of government bonds means that market participants expect the economy will accelerate and the tightening of financial conditions, which can put pressure on stock assets.

After a slight increase in the beginning of the American session, the main US stock indexes fell sharply at the end of the trading day. NASDAQ100 fell 2.0% to 6521.0 by the end of the trading day, the S&P500 – by 1.4%, DJIA – by 1.8%. All three indexes blocked the growth of the previous two weeks and reached the zone of important support levels located between EMA144 and EMA200 on the daily charts of the indices.

So far, the darkest scenario has not materialized, however, sales may once again intensify as soon as the geopolitical situation deteriorates again, and the reports of US companies may not be so positive.

The breakdown of the support levels 6371.0 (EMA200 on the daily chart of the NASDAQ100), 2611.0 (EMA200 on the daily chart of the S&P500), 23735.0 (EMA200 on the daily chart of the DJIA index) significantly increases the risks of breaking of the long-term bullish trend of the US stock market.