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VOO Understanding the US 10-Year Yield and Its Impact on Equity Markets
For those analyzing equity cycles, a critical component to monitor is the US 10-year Treasury yield. This yield has an inverse correlation with bond demand—when bond purchases increase, yields tend to decline, and when bond selling accelerates, yields rise.
The Relationship Between Bond Demand and Yields
When institutional investors, central banks, or foreign governments purchase a significant amount of US Treasury bonds, demand for these bonds increases. Since the coupon payment (interest) on the bond remains fixed, an increase in bond prices results in a lower effective yield (or interest rate). This is because the yield is calculated as a percentage of the bond’s price—when price goes up, yield goes down.
Conversely, when bondholders begin selling off US Treasury bonds, their prices decrease, leading to a rise in yields as new bonds must offer higher interest rates to attract buyers.
Why Does This Matter for Equities?
• A downtrend in the US 10-year yield suggests that liquidity is increasing in the market.
• Lower yields reduce borrowing costs, making loans and mortgages more affordable.
• More money flows into investments, particularly equities, supporting higher stock prices.
• This often aligns with quantitative easing (QE) or other accommodative monetary policies that inject liquidity into the system.
• A rising US 10-year yield, on the other hand, signals a liquidity drain.
• Higher yields suggest that bonds are being sold, driving their prices down and interest rates up.
• Increased borrowing costs lead to slower economic growth and reduced corporate profits, which can weigh on stock valuations.
• This is typically associated with tightening monetary policy or a flight to safer assets, which can cause equities to decline.
Liquidity and the Stock Market
Liquidity is the lifeblood of financial markets. Equities, valuations, and liquidity all move in tandem—higher liquidity generally drives stock prices higher, while lower liquidity constrains capital flow and can lead to market downturns.
Key Takeaway
Always monitor the US 10-year yield, as it is a strong leading indicator of liquidity conditions in the US and global markets. A sustained decline in yields suggests an increase in liquidity, potentially bullish for equities. Conversely, a sharp rise in yields can indicate tightening financial conditions, often signaling equity weakness.
This perspective is not the sole driver of market cycles, but understanding this correlation can provide valuable insight into the broader macroeconomic landscape and its impact on asset prices.
SPY Everyday you will come here on Minds and see the inevitable. People winning huge amounts of money. This will affect you, because you will also want to win. And this year will be extra volatile, so you will see people making 100x and so on. You keep letting it affect you and make you risk more and more. As for me, it doesnt affect me one bit anymore. And thats why i still have not put one penny in this year. I am sticking to my plan. Not putting any money in, unless i start winning on papertrading consistently. MMs wont know what hit them, when Livermore 2.0 lands. They will phone each other and ask 'what happened. what happened'. Another will shout out 'Sir, its Bones'.SPY Woke up just now and all i can think of is the market. That is what happens when you are unsuccesful in you're trading career. If i was successful then i would love the times when the market is closed. Because i'd be spending my money. Spending on close ones. Maybe one day eh Bones. Maybe one day Livermore 2.0 will finally arrive.
SPY People wonder why the market dumped..Jan employment numbers
+1,045,000 foreign born workers
+8000 native born workers, all the numbers out of that last admin where BS since day 1.
You can hate Trump all you want but he's exposing all the fing BS and I love it !!!!
Once the dust clears then maybe just maybe we'll have a market based on actual real numbers till then it will probably be a roller coaster so adjust to it.
Have a great weekend. 👍
SPY Steve where’s my ice water ball dipping updateSPY got nervous at the end of the day and tried to get outta my puts too late, now I’m locked in for 600p on Monday.
SPY I'm still feeling bearish overall for next week but this market is strong and hasn't been giving up much ground. And I didn't want to risk it over the weekend and listened to my friends. The 4hr chart is telling a good story I'm buying however. I'd expect a bit lower before we go up to the trend line to make a new lower high around 606. This could take a couple days. My downside number is 596 which I dont' see until the next leg down. This is my current view and I will stay flexible.
SPY yes FOMOT i agree, but would be nice to hit just one big win. usually when a candle pops down so quick