This Chart Says U.S. Interest Rates Are Heading Much Lower

Today I want to point to a chart that a really smart friend of mine has been sending me for months. He prefers to remain nameless, you know how these sell side guys roll, so we’ll just call him Mr. T. In this Chart, Mr. T has been telling me since the Fall that the Regional Banks vs REITs ratio is suggesting that U.S. Interest Rates are heading lower, specifically the U.S. 10-year yield.

On the top frame, we’re looking at the SPDR KBW Regional Banking (ETF) KRE over the iShares Dow Jones US Real Estate (ETF) IYR. In this case, the numerator, Regional Banks, do relatively well when the market thinks rates will rise, while the denominator, REITs, do relatively well when the market thinks that rates will fall. You see, as money looking for yield can’t get it in the bond market, they have to go into high dividend paying equities to search for yield. Plotted at the bottom is the U.S. 10-year yield, that you can see behaves very similarly to the ratio above:

This chart makes a ton of sense, and it’s easy to see why Mr. T has been pounding the table on it for months. I’ve agreed with him from the beginning and he finally let me share it with you guys. All of you know I think rates are heading lower, that’s not something I’ve been hiding. This chart just helps confirm everything that we’re seeing elsewhere.

I like bonds, specifically the long end – $ZB_F in futures or $TLT or $TLT options in the equities world.

This was originally shared on All Star Charts