Above, you will find “the indicator.”
I have written about it before, in support of an early chart on this site, the text of which said that “big trends can be self-reinforcing” — and that the particular indication (at that time, three years ago) was that you shouldn’t “be too quick to assume a change just yet” in the interest rate cycle.
A subsequent essay provided the back story of the massive unwinding of perceptions that fed the historic drop in interest rates (which mirrored their equally-historic rise). That piece is worth reading or re-reading, especially at this time when we are contemplating a sudden and sharp move higher in rates.
The chart is simple: It shows the monthly value of the Moody’s AA Utility Average and its 18-month moving average. (The last time I did the chart, the ever-sharp David Merkel pointed out that there aren’t too many utilities rated AA any more. He’s right, but I cling to that index for historical fealty — other measures would show a similar pattern.) The strategy: When the monthly reading moves above the moving average, you play defense in the bond market, and when it moves below it you play offense.
In the short term, the Moody’s index yield should continue higher, given that the daily values are already much in excess of the June monthly average. Then, who knows? It could retrace or continue racing ahead.
But a bell is ringing and I have been conditioned to pay attention to it. When a long-term trend finally changes, it surprises pundits and players and those just playing along — and surprises them over and over again. (Chart: Bloomberg terminal.)