Every trader in the world knows that utility stocks are very sensitive to interest rates. In other words, the higher the interest rate, the worst the utility stocks will perform. Recently, rates on the 10-year U.S. Treasury Note has been increasing. The yield on the 10-year note is trading at 2.63 percent and climbing. If you look at a chart of the Utilities Select Sector SPDR Fund (NYSE:XLU) you will see that it has been declining as yield on the 10-year note has risen. This just shows us how inverse the utility sector is to higher bond yields.
Watch This Price
Traders and investors should understand that bond yields are not going to the moon anytime soon. The Federal Reserve is expected to raise rates just three times this year. The next rate hike by the central bank is expected in March, so this current move higher in interest rates is probably factored in already. This tells me that utilities could be a buy at some point this year. Traders and investors should watch XLU's $45 level as that's where broke out in January 2016. Often, when key technical areas are retested, they will serve as major chart support. This is the level where I will be looking to buy XLU.
