As you can see the trends of the 10 yr note and the S&p 500 have a negative correlation
You can look at the 10 year note when wondering why the overall equities market is making a move in a certain direction. When the market is down, the bond market often goes up and vice versa.
* N.B. I am refering to the 10 year bond, not the yield. The yield of the bond goes up when the bond itself looses value. It is important to note that the negative correlation exists between the stock market the PRICE of the 10 yr note, not the yield. The yield goes down when the price of the bond goes up ( more people want bonds so the bond prices goes up and their yield goes down.)
Although many factor are in play, one explanation can be logically attributed to the rotation into equities when the conditions are more favorable for stocks, and rotating back into bonds when conditions suggests less favorable returns in stocks. When inflation reduces the "true" bond yields, their yield goes up to counter the loss du to inflation.
Another thing to note, when the difference between the 5yr and 30yr yield gets smaller( yield on 5 yr goes up, yield on 30 yr goes down), it suggests higher inflation expectation in the short term but lower inflation expectation in the long year. Historically, when they cross and actually reverse, a significant pull back has happened in the overall market.
Let me know what you think of this, opinions always appreciated.
You can look at the 10 year note when wondering why the overall equities market is making a move in a certain direction. When the market is down, the bond market often goes up and vice versa.
* N.B. I am refering to the 10 year bond, not the yield. The yield of the bond goes up when the bond itself looses value. It is important to note that the negative correlation exists between the stock market the PRICE of the 10 yr note, not the yield. The yield goes down when the price of the bond goes up ( more people want bonds so the bond prices goes up and their yield goes down.)
Although many factor are in play, one explanation can be logically attributed to the rotation into equities when the conditions are more favorable for stocks, and rotating back into bonds when conditions suggests less favorable returns in stocks. When inflation reduces the "true" bond yields, their yield goes up to counter the loss du to inflation.
Another thing to note, when the difference between the 5yr and 30yr yield gets smaller( yield on 5 yr goes up, yield on 30 yr goes down), it suggests higher inflation expectation in the short term but lower inflation expectation in the long year. Historically, when they cross and actually reverse, a significant pull back has happened in the overall market.
Let me know what you think of this, opinions always appreciated.
評論:
Ignore this one, i reposted it