Trade the SPY

Bond yields and SPY

The 10-year Treasury is the rate most equity desks watch against SPY. Higher yields usually press long-duration stocks; they are not a switch that always turns the S&P 500 off.

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SPY delayed

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13-week

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5-year

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10-year

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30-year

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10y − 13w

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Corr vs SPY

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60d corr

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As of

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SPY vs the 10-year

Daily SPY close (left) and the 10-year yield (right). Separate scales — a falling yield line is not the same as a falling stock.

SPY 10-year

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What a yield is

A Treasury yield is the market’s interest rate on that bond, not a stock ticker. When the price of the note falls, the yield rises. On this desk the 10-year is CBOE ^TNX as a percent — 4.70 means 4.70%.

Desks treat the 10-year as the risk-free building block for long-lived cash flows. The 13-week bill is cash. The gap between them is a simple curve: steep when the market pays more to lend long, inverted when cash yields more than the 10-year.

Why SPY usually cares

SPY is a claim on future S&P 500 earnings. Raise the discount rate and the present value of those earnings falls — hardest on names whose profits sit farthest out (a large share of SPY’s weight in megacap growth). Higher bill yields also compete with equity: cash is no longer ~0%.

Banks and some insurers in the index can benefit from a higher or steeper curve. That is why a yield spike is not a uniform SPY sell signal — it reshuffles which sectors lead.

Duration / discount rate

Think of a stock as a long-duration bond with uncertain coupons. When the 10-year jumps, those coupons are worth less today. Growth-heavy SPY has behaved more like long duration than a bank book.

The usual inverse

On many stretches, daily SPY returns move opposite daily 10-year yield changes (a negative correlation on this page). Yields up, stocks down — and the reverse when yields fall on a “bad news is good” easing bid.

When it breaks

2022: stocks and bonds sold off together as inflation forced the whole rate structure higher. Other windows: yields rise on stronger growth and SPY rallies with them. Correlation here is a description of the window, not a forecast.

Not the Fed funds rate

The policy rate anchors the front end. The 10-year is the policy path plus term premium. SPY can rally on a cut if the 10-year is already pricing a slowdown, or sell off if cuts mean recession. Watch the note, not only the headline Fed move.

Interest-rate tape

Easing vs tightening is a tape read from the 10-year’s last 5 and 20 sessions, the 10-year minus 13-week curve, and 30-day fed-funds futures (ZQ) versus the bill when that quote is up. It is not CME FedWatch probabilities and not a forecast.

Sources

Marks are delayed public quotes (CBOE Treasury yield indices as a percent, SPY last, CME ZQ when Yahoo prints). Not a live tape. Hypothetical marks ignore taxes, fees, and costs. Not investment advice.