Once again, bond yields on the 10 and 30 year U.S. Treasury Note are rising. Last week, the yields jumped sharply higher by more than 25 basis points on both the 10, and 30 year note. Higher rates will effect the important mortgage market and this could be problematic to the recent inflation rally. As we all know, the Federal Reserve has been using it’s Operation Twist program to keep yields artificially low. The purpose of this is program is to keep the housing and refinance market stable. If mortgage rate start to increase further it could stall out the mini housing boom that has been occurring over the past few months. Traders can follow and trade the bond yields by using the iShares Barclays 20+ Yr Treasury Bond ETF (TLT), and the iShares Barclays 7-10 Year Treasury Bond Fund (IEF).
The leading home-builder stocks have been in bull mode since October 4, 2011. Stocks such as Toll Brothers Inc (NYSE:TOL), D.R. Horton, Inc (NYSE:DHI), and KB Home (NYSE:KBH) will often trade adversely to the higher bond yields. This morning, all of the major home-builder stocks are declining.
Leading utility companies are also negatively effected by higher bond yields. Often the leading utility companies will borrow money for operations and the higher bond yield will make those loans more expensive. Traders and investors can easily see how the Utilities SPDR ETF (XLU) sold off sharply last week when the yields spiked.