Like any relationship, correlations have life cycles which can vary over time; increasing, decreasing, or even disappearing, depending on the steady or changing market environment. There was a time when there was a positive relationship between yield movements and stock returns, especially when the 10 year treasury yield was below 5%. Rising rates were historically associated with rising stock prices; but when the 10 year yield was above 5% a negative relationship between yield movements and stock returns existed. Since '09 the S&P rallied from 666 to near 2200 while 10 year rates fell from ~4% down to ~1.3 due to central bank monetary policies. However, the Fed's actions may result in changing the correlation between treasuries and equities once again, ushering in a secular regime change where rates are rising and are positively correlated with rising equity returns.


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