Something's Gotta Give - Stocks and Bond Yields

Here is my post last week for Marketwatch's Trading Deck:

The recent disconnect between the Stock Market and 10-Year US Treasury Bond Yields seems unsustainable to me. Since the late 90s, stocks and Treasury yields have been positively correlated. In other words, if bond prices rise, then the yields of those bonds fall along with stock prices. The opposite is also in that when bond prices fall, bond yields rise and so do stock prices.

Treasury bond prices have exploded higher over the last few months as stock prices got crushed. But it's the yields, breaking below their 2009 lows, that concern me. Is the bond market telling us something about future stock prices? The S&P500, even after its massive declined off the Spring highs, is still well above the 2009 bottom. In fact, it's not even close. The S&P500 is still 80% above those bear market lows, while last week, Treasury yields hit fresh lows down near 1.8%.

You could argue that the recent disconnect is the result of Federal Reserve's manipulation of the Bond Market. Since 2009, the Fed has been proactive in keeping rates at low levels. The Stock market seems to like that. Asset prices are being rewarded and heading higher, but it doesn't appear to be helping the real economy.

Read the rest at the Trading Deck

Tags: $SPX $SPY $TNX