We consider 10-year yields as a leading indicator for both stock markets and bond markets because it is a risk indicator. That indicator is now on the verge of a tactical breakdown, and, hence, a tactical bear market. A breakdown, once official, implies weakness in stock markets and strength in bonds. Moreover, such a scenario would be good for gold.

Earlier on, we wrote the following two pieces, highly relevant and worth reading in the context of the point we try to make:

Watch This Market As A Leading Indicator For Gold And Stock Markets
Gold Investors Watch Yields As A Gold Price Indication For March 2017

The chart below has some interesting insights.

First of all, it highlights the importance of the 23 points area. That has acted as support for 5 months now. A break below that area would open the door for lower yields, with the 19 points area acting as the first support area. That is because it was the start of a gap higher.

Second, though not visible, 17 would be the next stop, as it connects a rising and falling trend.

Falling yields will be a significant risk-off signal, and it would bring weakness in pretty much all stock market sectors, much more the offensive sectors (industrials, financials, technology) than the defensive sectors.

Gold should be the beneficial party of falling yields, as the real rate of interest would go up. This supports our view that both Gold and the Dollar are close to new bullish or bearish trends, tactical rather than secular.

Readers should note that this article is on a tactical level. On a secular, and even historic level, we identified that disruption could be ahead in stocks and bonds once 10-year yields would rise above 3 percent. In the current article, however, our timeframe is much shorter.