A Surprising Chart and the Bull’s Reaction

by Warren Seah

Tom Lee, a well-known stock-market bull and head of research at Fundstrat, recently came across a chart that left him perplexed. The chart displays 10-year yields from around the world, revealing an unexpected insight.

Surprisingly, the yield in the U.S. (BX:TMUBMUSD10Y) surpasses even that of Greece (BX:TMBMKGR-10Y), which has managed to reduce its debt burden but still maintains a worse credit rating than the U.S.

Lee expresses his bewilderment by adding “wut” tags to the bonds of Spain (BX:TMBMKES-10Y), Germany (BX:TMBMKDE-10Y), and Japan (BX:TMBMKJP-10Y). Despite higher inflation rates in Germany, Spain, Greece, and Japan trailing not far behind, Lee suggests that the U.S. does not possess a riskier currency to justify the difference in yields.

In a video message, Lee muses, “Maybe this is another example of how there’s been a lot of momentum pushing yields higher, but it may be divorced from fundamentals.” However, he cautions that this does not necessarily mean that things will change in the coming week.

There are, of course, additional factors contributing to higher U.S. yields. Japan’s central bank continues to buy debt while the Federal Reserve is selling. Additionally, Germany carries a smaller debt burden relative to its economy’s size compared to the U.S.

Although the S&P 500 (SPX) has experienced an 11% gain this year, it has declined by 7% since its peak in late July.

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