BOND YIELDS NEAR 5%… Bond yields reached another nine-month high today. The chart below shows the 10-Year T-Note Yield nearing 5%. Bond yields in excess of that level might make stock investors nervous. One sign that the market is taking notice of rising rates is the fact that rate-sensitive stocks are among the weakest market sectors. That includes financials, retailers, REITs, and utilities. Mr. Bernanke’s pessimistic comment on housing may be contributing to some stock selling. At the same time, a strong report from the service sector is keeping bond prices under pressure. That’s a dangerous combination.

UTILITIES START TO ROLL OVER … rising bond yields are causing profit-taking in utilities. The change in trend is seen in the chart below. The Dow Utilities are trading below their 50-day average for the first time since January. Notice the downturn in the relative strength ratio over the last month. A drop in utilities is one of the first signs that rising rates are making some traders nervous.