Correlation between US Treasury Notes and US Stock Index

I did a comparison of 10-year US Treasury Note yield (in percentage) with S&P 500 stock index for past three months.

Visually, the two graphs looks quite similar. (Note: Source of graphs from Yahoo! Finance) When the stock index was down, the Treasury yield was down too and similarly when the stock index rises the Treasury yield rises.

For bonds (or treasuries), price of bond moves in opposite direction as bond yield.

When investors are fearful, stock index declines because of sell-off of equity. Money moves to safe-haven US Treasuries and therefore price of Treasury rises. Treasury yield declines as a result. When confidence in stock market returns, money flows back to equity and hence pushing up stock index. The yield in Treasuries increases because demand for Treasuries declines. Note that this is just an observation for past three months as the reasons for correlation may not be as simplistic without accounting for other factors.

Date S&P 500 index 10-yr Treasury Yield
20 Aug 1418 1.8140
4 Sep 1404 1.5810
14 Sep 1465 1.8700
26 Sep 1433 1.6180
4 Oct 1461 1.6650
6 Nov 1428 1.7420
15 Nov 1353 1.5890
19 Nov 1386 1.6110

Last week was a bad week for US equity. S&P 500 index declined to 1,353 points (lowest in three months) and yield for 10-year Treasury note was down to 1.5890%.

As of yesterday, S&P 500 index improved and so was the Treasury yield.

Copyright © 2012, limkimtong for Living Investment

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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