Divergence between yield and index price action
As it is known that bond prices are inversely proportional to their respective yield, a decrease in yield means an increase in the price of the bond. Right now we are seeing a continuous decrease in the 30-year bond yield (same goes for the 10-year bond yield_) even the indexes and the global markets as a whole have been going up. This means that bond prices are rising to show an increase in the demand for bonds. This is divergent because usually, the opposite happens. The markets doing well is usually shown by money moving out of low-risk long term bonds and into stocks.
The opposite can also be said. When the markets go down or economic uncertainty and risk is on the table, money flows out of stocks (and short term bonds) and into more secure long term bonds, increasing their price and decreasing the yield. The fact that indexes seem to be recovering but long term yields have continued to trend down is a big red flag and should risk should be considered before going long here.
The opposite can also be said. When the markets go down or economic uncertainty and risk is on the table, money flows out of stocks (and short term bonds) and into more secure long term bonds, increasing their price and decreasing the yield. The fact that indexes seem to be recovering but long term yields have continued to trend down is a big red flag and should risk should be considered before going long here.
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