Equity Returns and TIP Yields

Here’s a look at the relationship between equity returns and the yield on 5-year Treasury Inflation Protected securities. The 5-year TIPs yield is the y-axis and the monthly gain/loss of the S&P 500 is the x-axis.

I haven’t run a regression but by eye-balling the chart, there seems to be a weak negative correlation. In other words, the dots kinda form a downward sloping trend. This makes sense — the lower the real yield you get in fixed income, the greater the desire for alternatives.

Earlier this year, the 5-year TIPs yield shot up from around -1.4%, where it had been for a few months, to -0.2% in just a few weeks. Later, it broke into positive territory for a brief shining moment. Currently, the yield is hanging out around -0.47%.

Posted by Eddy Elfenbein on November 20th, 2013 at 10:24 am

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