Treasury Yields and Stock Market Performance - October 10, 2018
The yield on the 10-year Treasury bond is approaching 3.25% (MarketWatch), the highest since May 2011 (St. Louis Federal Reserve).
The recent spike in Treasury yields has created modest volatility in the major market averages, though the Dow Jones Industrial Avg1 remains near its peak.
How do rising and falling Treasury yields impact stocks? A recent study that reviews monthly changes in the 10-year yield and the S&P 500 Index2 from April 1953–June 2013 sheds some light.
Monthly S&P 500 performance in rising and declining yield environments
| No. of months | Avg monthly S&P 500 return | |
| 10-Year Yield Down | 347 | 1.38% |
| 10-Year Yield up | 358 | 0.63% |
| All | 722 | 0.94% |
Source: S&P Dow Jones Indices: Much Ado About Interest Rates. Data through June 2013. Charts are provided for illustrative purposes. Past performance is no guarantee of future results.
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Historically, rising yields have hindered performance.
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The study also revealed that sharp increases in yields were most negative for stocks. Moderate increases in yields didn’t detract from performance.
Breaking S&P 500 performance into two periods
| Apr 1953-Dec 1997 | Jan 1998-Jun 2013 | All periods | |
| 10-Year Yield Down | 2.15% | -0.38% | 1.38% |
| 10-Year Yield Up | 0.30% | 1.81% | 0.63% |
Source: S&P Dow Jones Indices: Much Ado About Interest Rates. Data through June 2013. Charts are provided for illustrative purposes. Past performance is no guarantee of future results.
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More recently, falling yields have been associated with uncertainty and economic weakness, pressuring shares.
Investor’s Corner
The data argue against market timing, suggest higher yields are not necessarily bad for stocks, but do not draw definitive conclusions. Much may depend on the underlying factors that drive yields higher, and how quickly yields might rise.
