Stocks And Bonds Break Apart

A funny thing happened on Monday afternoon. As stocks rolled over into the close, US Treasury Bonds didn't follow. This is now something different, a change in character for these markets. Last Friday we ran the numbers: Stocks and Bonds ($SPY & $TLT) had a 1-week positive correlation of +0.95, a 2-week correlation of +0.94 and a 1-month +0.79. The results showed a very high positive correlation between the two asset classes. Interest rates rising was bad for stocks and bonds. But no more.

I was pretty vocal on Stocktwits Monday about this shift in market behavior. But since this has now continued into Tuesday, I think it's worth a quick blog post. Lower rates are now negative for stocks.

Here is a 10-minute chart showing the close relationship between the two asset classes. They came apart around 2 o'clock Monday:

With stocks selling off, it seems as though the market is looking for the safety of US Treasury Bonds. Safety appears to be the priority, not the fear of higher rates. This is an interesting development.

I'll follow up as this behavior continues. I think this is just the beginning of the return of negative correlations.

Tags: $TLT $SPY $ZB_F $ZN_F $TNX $SPX $ES_F