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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.
NVDA What you think about Market, share your thoughts
NVDA So, I’m staying long but understand the risks. What pisses me off is I know we’d be over $154 by now had Deep Fake not happened but wishes on what cud have been is a waste. Really pisses me off that our MSM continues to float the story despite knowing it’s fake news, but with some innovations after stealing LLM model data and obviously using banned chips. Typical of the lying, thieving Chinese. My concerns are 🍊 Man, escalating trade war with China, and potential tariffs on Taiwan’s chips. The reality is, tariffs are being used as a bargaining chip, and will likely be short lived. Trump wants to force Taiwan to build more chips here. Last year this time, NVDA jumped big once earning was released, but the other reporting quarters sold off.
NVDA For seasoned traders, how long did it take you to be consistently profitable and developed your strategy?
NVDA they are about to put y’all in a body bag. RIP.
NVDA I have pity for people that take bearish positions less than 1 month before earnings when fundamentals are net bullish, it never ends well
NVDA after earnings $150+ ?
NVDA There goes all the bears stop losses.
NVDA Its been a while that i see NVDA and a few others green while the rest is in deep red lol. So nice
NVDA I love this stock so much oh god. It’s so fun playing when the jokers are finally out