today (fri. April 18th)TOTAL proof 30YR does not track inversely the DOW/SP.read

Discussion in 'Financial Futures' started by increasenow, Apr 18, 2008.

  1. today (fri. April 18th) is TOTAL proof 30YR does not track inversely the DOW/SP...okay, BOND professionals...get a chart out and explain this to us all...YM is off a little bit this afternoon and 30YR is soaring, soaring UP...explain it...the recent 'monologue' has been that Bonds inversely track the DOW/SP...please explain...thanks!!!
     
  2. I don't think anyone says the correlation is 1.0.

    It's a pretty safe assumption to say that bonds and equities generally move inversely over a longer period of time.
     
  3. Actually it's the better bet that they're correlated in the macro. Low rates equal strong stocks and high rates-bad for stocks.
     
  4. Maybe it's better to say that rising rates are indicative of a healthier economy and stock market & decreasing rates are reflective of a weakening economy and stock market.
     
  5. Depends entirely on the overall facts of each situation. In the markets there are no immutable rules. In the last 10 years, low rates have been accompanied by atrocious stock performance, the exact opposite of what finance theory suggests. Anyone trading on the Fed model would have been crucified since 1998. Anyone fading it would have made a killing.

    The key problem is the "other things being equal" clause in all theoretical relationships. In the last decade, rates have gone down for one reason only - when the economy is up sh*t creek. So yeah, in 1998, 2001-02, 2007/08 rates are lower - but earnings prospects and risk looked even worse. So despite the boost to valuations by lower rates, this was more than offset by the expansion in the risk premium and lowering of earnings estimates. Net result - collapsing stock prices & valuations.

    Other classic cases where low rates = terrible stock performance were Japan in the 1990s (rates fell from over 7% to under 1%; stocks should have soared according to naive "theory", but instead they fell 75%), and US in the 1929-1941 period.

    Beware naive correlations and simplified theoretical models.
     
  6. PROOF..........

    Don't ever look for proof in the futures. Markets are abstract.
     
  7. I remember someone did research on this said the correlation is only about 0.6!:cool:
     
  8. Not only proof, but TOTAL proof :p

    q.e.d.