US10y De-correlation with SPX (Yield > 2.8% is SPX danger-zone?)
The red rectangle highlights the current Yield-Red-Zone for equities.
Initially, as the US10y yield (blue line) moved above 2.6% starting at the vertical yellow line, the SPX started to move sideways.
Yields continued higher putting a cap on equities and once the 10y yield moved past 2.8% (the start of the Yield-Red-Zone), equities began to falter and retracted.
This highlights an interesting 'new' relationship given that recently, equities have moved higher even though yields have been moving higher. This change in relationship might highlight that given the recent surge in volatility, most asset classes will have to remodel volatility into their valuations and this may result in a de-correlation of equities and bonds.
I suspect that going forward, as volatility will likely get repriced in all asset class models, the higher yields go, the lower equities go in this 'new' regime.
Initially, as the US10y yield (blue line) moved above 2.6% starting at the vertical yellow line, the SPX started to move sideways.
Yields continued higher putting a cap on equities and once the 10y yield moved past 2.8% (the start of the Yield-Red-Zone), equities began to falter and retracted.
This highlights an interesting 'new' relationship given that recently, equities have moved higher even though yields have been moving higher. This change in relationship might highlight that given the recent surge in volatility, most asset classes will have to remodel volatility into their valuations and this may result in a de-correlation of equities and bonds.
I suspect that going forward, as volatility will likely get repriced in all asset class models, the higher yields go, the lower equities go in this 'new' regime.