Ten Year Yields and SP500 (zz)

http://blog.afraidtotrade.com/comparing-ten-year-yields-and-sp500-during-recession-and-recovery/?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+afraidtotrade%2FNRSd+%28Afraid+to+Trade.com+Blog%29&utm_content=Google+Reader

There’s two main ideas:

1. Ten-Year Treasury Note Yields (TNX) are strongly positively correlated (move in the same direction) with the S&P 500.

2. Treasury Yields have often shown a slight LEAD time (advance) at key turning points in the markets.

Remember, bond prices and yields are INVERSE, such that rising yields mean falling bond prices, and rising bond prices mean falling Treasury yields.

Investors can’t purchase YIELD but they can purchase bonds – thus the supply and demand relationship may make more sense if you look at prices instead of yields.

As in, when stock prices are RISING, investors typically sell ‘conservative’ bond positions to buy stocks, and vice versa, when stocks are falling, investors typically flee the risk in stocks to the safety in bonds.

Anyway, the Federal Reserve has created – or are trying to create – artificial DEMAND by purchasing bonds to drive yields lower.