Since the current economic crisis emerged in 2007, a rough pattern has been that major movements and levels in US Treasury ten year note yields have preceded or coincided with those in the S+P 500. Thus, “in general”, plummeting UST yields have been paralleled by diving stock prices. And rising interest rates are connected to rallies in stocks. So in today’s world, gurus and guides often underline that higher and higher UST rates fit an economic recovery (health) scenario. In contrast, collapsing rates indicate looming (or actual) disaster; hence the popularity of flight to quality and safe haven commentary in regard to UST. Such relationships between the UST 10 year note and stocks (and variables allegedly bound to them) of course help forecasters to assess probabilities for and predict important debt and equity trend changes. Looking forward, this ongoing pattern may well persist.
Yet at some point, and arguably within the next several months, the present relationship between the US ten year and the S+P 500 may change. Thus rising UST yields eventually may coincide with sinking stocks. What key trading levels for the 10 year should one keep an eye out for? Such trigger point ranges will vary over time. So anyway, what guidelines for nowadays? If the US 10 year note yield floats decisively above the 2.50 percent level, and if stocks rally very little as that yield barrier is breached, that would hint the current (2007-2011) UST/S+P 500 relationship is altering.
As the global economic crisis flows on and on, many of its intertwined actions and participants (and thus marketplace relationships) may remain relatively unchanging. But they are not stagnant. Today’s marketplace voyagers should wonder if the crisis has drifted closer and closer to a new round of difficulties. Look at European yields, and place Germany on the sidelines. Focus instead on Greece, Portugal, Ireland, Spain, and Italy. These countries show that severe economic problems (and downturns) are not always or inevitably associated with falling (or low) government interest rates.
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