How have long-term US treasury bonds been used as a refuge from stock volatility over recent years? Bonds tend to rise when stocks are more volatile (and go down), and vice versa.

For every non-overlapping 10-day period (7/02-present), I calculated mean level of US 20+ year Treasury bond ETF "TLT". The data used was NOT adjusted for dividends, in order to reference then-current bond price level without dividend-updrift. For the corresponding 10-day periods, also calculated the volatility of daily SPY returns (SP500 index). From these two series formed the ratio: mean 20+ year treasury level per unit SP500 volatility, the chart of which follows.

From 2002-04, the ratio rose as stock volatility declined while treasury prices remained relatively flat. From 04-late 2006, the ratio was generally high due to many-year lows in stock volatility. From 2007-late 2008 the ratio declined; due to a combination of rising treasury prices and stock volatility which rose more - "flight to safety". The ratio formed a multi-decade bottom in late 2008, then rose due to a combination of falling treasury prices and stock volatility which declined faster. Recently there were two smaller flights to safety when the ratio collapsed in May 2010 and August 2011; both corresponding to treasury prices spiking more than stock volatility marking worry over European sovereign debt.

To the extent that the US FED has attempted to influence longer-term treasury yields over the past year or so, recent treasury price per unit stock volatility appears consistent with the longer term.


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