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.
Nice chart. I think higher yields will increase volatility but it may or may not move inverse to equities. There is a possibility that part of the outflows from bond funds will go into equities. I think we'll have to see.
arigolden
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@SkyRock, Thanks buddy. Zerohedge interestingly just posted the same SPX vs 10y yield chart and have highlighted the correlation change. How interesting...