From Risk Reversal:
The U.S. 10 year Treasury yield peaked in early September, after
rising most of the summer in anticipation of the Taper. The No Taper
announcement on the Sept FOMC broke the multi-month uptrend in U.S.
Treasury yields.
The 10 year yield is around 2.65% this morning, vs. a peak of about
3% in September. The 2.5% is the obvious level to watch on the 10 year
yield, and importantly, it was not breached on the most recent decline
in yields.
Stocks have clearly been reacting to moves in rates. The correlation
between the 10 year yield and the S&P 500 has flipped in the past 6
months:
20 period correlation between S&P 500 and the 10 year Treasury yield, Courtesy of Bloomberg
However, it’s worth noting that yields are substantially higher and
the S&P 500 is also substantially higher in the last 6 months. How
does that add up with the negative correlation?...MORE