Anbat

Inverse Relationship Between SPY & TLT (should know)

AMEX:SPY   SPDR S&P 500
Today we are reviewing one of the more iconic relationships - the link between equity (stocks) and debt (bonds).

The big difference between stocks and bonds is that people who buy shares of stock are owners of the company while people who buy bonds are lending the company money. Generally, buying stock let’s you participate in the success or failure of the company as the stock price rises and falls, while buying bonds lets you collect interest and hopefully get your full principal back.

A stark illustration of this distinction can occur during bankruptcy, when stockholders are basically the last group to be paid out if there are remaining assets. Bondholders on the other hand are among the first to get paid. Historically, there has been an inverse correlation between the movement of stock and bond prices. We’ll compare SPY             for stocks with TLT             for bonds.

Aside from illustrating negative correlation between TLT             and S&P 500             , also reveals during spring of 2015, this inverse relationship had broken down to some degree. Over the last 10 years, TLT             and SPY             had a negative relationship (inverse correlation) on a 1-month basis on 82% of trading days. But why? One reason is that earnings drive stock prices and interest rates drive bond prices. Performance of the economy, then, is the axis around which these two drivers revolve.

For example, when the US economy is acting poorly, central bankers tend to lower interest rates to help stimulate growth. As interest rates go down, bond prices go up. In contrast, stock prices generally go down when economic conditions erode. These realities therefore fit the hypothesis - declining economic conditions are typically paired with falling interest rates, rising bond prices, and declining equity prices. It's important to note that while the negative correlation between the TLT             (bond prices) and S&P 500             (equity prices) may hold the majority of the time, there are instances where it breaks down. As, always this is not 100%, but actually closer to 96.5% negatively correlated & 3.5% positively correlated. This will tell which direction to trade for day.
I understand all that you've written here, thank you for it. But my question is, when you say, "this will tell which direction to trade for the day', what do you mean?
回覆
Anbat mikejody
@mikejody, if SPY shows a green candle that means DOW/Stocks are going up and TLT (Bonds) are going down and visa versa. The SPY is your day to day direction compass, especially if you day trade stocks.
回覆
ZH 繁體中文
EN English
EN English (UK)
EN English (IN)
DE Deutsch
FR Français
ES Español
IT Italiano
PL Polski
SV Svenska
TR Türkçe
RU Русский
PT Português
ID Bahasa Indonesia
MS Bahasa Melayu
TH ภาษาไทย
VI Tiếng Việt
JA 日本語
KO 한국어
ZH 简体中文
AR العربية
首頁 股票篩選器 外匯篩選器 加密貨幣篩選器 全球財經日曆 如何運作 圖表功能 網站規則 版主 網站 & 經紀商解決方案 小工具 圖表庫 功能請求 部落格 & 新聞 常見問題 幫助 & 維基 推特
個人檔案 個人檔案設定 帳戶和帳單 我的事件處理號碼 聯絡客服 發表的想法 粉絲 正在關注 私人訊息 在線聊天 登出