SP500 Earnings Yield Spread: SP500 vs 3 Month & 10 Year TreasuryAdd the SP500 ttm Earnings Yield Spreads vs the 3 Month and 10 Year Treasury Rates.
Short Spread = SP500 E/P ttm - 3 Month Treasury Rate
Long Spread = SP500 E/P ttm - 10 Year Treasury Rate
Symbol "SP500_EARNINGS_YIELD_MONTH" as the SP500 Earnings Yield
Symbol "US03MY" as the 3 Month Treasury Rate
Symbol "US10Y" as the 10 Year Treasury Rate
Based on research suggesting Earnings Yield and Interest Rates may have predictive power of future returns:
- Market-Timing Strategies That Worked? - Pu Shen
- Valuation Ratios and the Long-Run Stock Market Outlook - Campbell and Shiller
Inputs:
Short Term Spread - Line for Short Term Spread
Long Term Spread - Line for Long Term Spread
Zero Line - Horizontal line at 0
Color Lines Based on Spread - Color the spreads green/red if spread is positive/negative
Short 10th PCT - Line for Short Term Spread 10th percentile of historical values
Long 10th PCT - Line for Long Term Spread 10th percentile of historical values
Shade Below 10 PCT: Spread Must be Negative - Requirement the spread is negative to shade background
Shade Background Below Short 10th Percentile - Shade the background if the Short Term Spread is below its 10th percentile. (and spread is negative if input above chosen)
Shade Background Below Long 10th Percentile - Shade the background if the Long Term Spread is below its 10th percentile. (and spread is negative if input above chosen)
Yieldspread
Bond Yield SpreadThe Bond Yield Spread Script is developed for forex traders, offering an automated tool to calculate the bond yield spread between two countries associated with the forex pair displayed on the chart.
Functionality:
The script starts by identifying the base and quote currencies of the current forex pair and aligns them with their corresponding national bond symbols based on user-selected maturity, with options ranging from 01Y to 30Y. It calculates the yield spread by subtracting the bond yield associated with the quote country from that of the base country, following the formula:
Yield Spread = Yield(Base Country) − Yield(Quote Country)
which is then displayed as a plot line on the chart.
This script relies solely on TradingView's internal yield symbols, with the following calculation:
"currency" => "first two letters" + maturity
And maturity, in this case, is the value that is configured in the indicator settings, for example:
"EUR" => "EU" + "02Y" will result in EU02Y -> which will be used in the formula, depending on the quote or base currency.
Application in Trading:
This indicator is invaluable for traders employing carry trading strategies or assessing currency strength based on traded interest rates as an indicator. A higher yield spread typically indicates a stronger currency, because the return obtained for holding the currency is higher.
Originality and Practicality:
This script is self-developed, aiming to fill the gap in automatic bond yield comparisons within the TradingView environment. It is particularly beneficial for traders focusing on macroeconomic factors affecting forex markets. Unlike other scripts, it integrates various bond maturities into one tool, enhancing its utility and application range.
Conclusion:
Designed for traders incorporating macroeconomics in their strategy, this script will be useful to calculate the bond yield differences automatically without having to enter a new formula for every new currency pair.
Compliance and Limitations:
The script complies with TradingView scripting standards, ensuring no lookahead bias and maintaining real-time data integrity. However, its utility depends on the comprehensive availability of bond yield data within TradingView. As not all countries issue bonds for each listed maturity, this may limit the script’s application for certain currency pairs or specific maturities.
Global Yield SpreadThe Global Yield Spread is a simple indicator that can help to identify economic wellbeing and thus allows traders and investors alike to derive a rough estimation onto where the market is likely to go.
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Please note that things like Yield Spread generally influence the market only over longer time horizons of a couple weeks to many months.
Also be aware that the Yield Spread is only capable of measuring the Yields on Bonds and is thus limited to only changes that are reflected in the interest rates on the Bonds.
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The Normal Yield Spread is widely recognized for it's signal abilities for recessions or general economic well being...
However, since the rates have decreased drastically in the US something else has been proposed: The Global Yield Spread
As the normal US Yield Spread is loosing signal capacity because the US government can easily borrow money from overseas,
thus reducing the need to increase interest rates.
By monitoring and analyzing the Global Yield spread, traders and investors can gain insights into relative valuations, economic movements, market sentiment, and opportunities.
It can help inform their investment decisions and strategies, allowing them to allocate capital more effectively and potentially generate better returns.
You have options to visually represent a diversity of Countries and their according Yield Spreads.
Furthermore there are Global Yield Spreads for:
10Y-03MY
10Y-02Y
30Y-10Y
The Average Global Yield Spread encompasses the 3 options above to get an average reading.
10-2 Year Treasury Yield Spread by zdmreLong-term bond yield reflects inflation. Short-term bond yields are tools used to predict Fed's interest rate policy. Spread between the two represents four cycles of an economy.
1. Growth
Short-term yield rises as interest rates rise. Spread narrows.
2. Slow growth
Central bank raises interest rates faster and short-term yield exceeds long-term yield. Spread turns negative.
3. Recession
High interest rates lead to more defaults. Inflation caps consumption. Central bank lowers interest rate to stimulate the economy and short-term yield falls. Spread widens.
4. Recovery
Central bank continues easing. Spread remains wide and yield curve remains steep.
0 = Recession Risk
2.6 = Recovery Plan
DYOR
