Cyclical Analysis: In this article, we examine the current relationship between bond yields (specifically the T-Note, i.e., the 10-year US Treasury Note) and the S&P 500 index.
By Eugenio Sartorelli – www.investimentivincenti.it
Copyright DMF New Media – ETFWorld.co.uk
Reproduction prohibited in any form, even partial
Classic intermarket analysis states that bond yields (which we know move inversely to prices) should typically have an inverse relationship with stock index values.
The rationale is that high bond prices are linked to relatively low yields. In these situations, portfolio managers tend to show greater interest in stocks, precisely because bond yields may be unsatisfactory. Conversely, when bond yields are high (and thus prices are low), this asset class attracts greater interest compared to stocks.
In reality, things are more complex, and other parameters must be considered, such as inflation, central bank policies, and expectations regarding the economic cycle.
We will focus primarily on the relationship between the T-Note yield and the S&P 500’s performance starting from April 2024, using daily data.
The black line represents the T-Note yield (right scale), and the red line represents the S&P 500 index value (left scale). At the bottom is the correlation between the two charts, calculated over 126 data points (i.e., 6 months of data). As seen, this correlation has been persistently positive since December 2024 onward.
I have highlighted 3 distinct phases showing a clearer inverse correlation:
Mid-April 2024 to Mid-July 2024: T-Note yield falling, S&P 500 rising;
Early August 2024 to September 2024: T-Note yield falling, S&P 500 rising;
May 21, 2025, to present: T-Note yield falling, S&P 500 rising.
It should be noted that the current phase saw a low in the T-Note yield at the end of June (see black arrow), and it has since been rising slightly.
We know that the Fed will decide on US interest rates on July 30, and no changes are expected. Due to this, alongside growing US public debt (driven by the expansive policies of the new US Administration) and inflation that is at least not falling and is indeed expected to rise, US bond yields are at least expected not to decline. The 10-year T-Note currently yields 4.4%, while the 30-year T-Bond is approaching 5%.
These are certainly attractive yields compared to the average returns of US equities. Under “normal” conditions, it would be natural to expect greater caution toward the US stock index, which could halt its rise in July and partially in August.
However, as mentioned above, the US Administration is providing more money to citizens (via tax cuts) financed by expanding debt. Therefore, liquidity flow could once again disrupt intermarket relationships.
Copyright DMF New Media – ETFWorld.co.uk
Reproduction prohibited in any form, even partial
Disclaimer
The contents of these notes and the opinions expressed should in no way be regarded as an invitation to invest. The analyses do not constitute a solicitation to buy or sell any financial instrument.The purpose of these notes is financial analysis and investment research. Where recommendations are made, they are of a general nature, are addressed to an indistinct audience and lack the element of personalisation. Although the result of extensive analysis, the information contained in these notes may contain errors. Under no circumstances can the authors be held liable for any choices made by readers on the basis of such erroneous information.erroneous information. Anyone deciding to carry out any financial transaction on the basis of the information contained in the site does so assuming full responsibility.
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