Does the 10-Year Yield Really Matter?

Two items are dominating the news narrative right now: the rise in interest rates and the decline in tech stocks. Are rising rates really an issue for tech stocks? The charts suggest that the evidence is mixed, at best. In fact, it is not very hard to find periods when tech stocks rose along with the 10-year Treasury yield. Let's check the evidence.

The chart below shows the 10-year Treasury Yield (black line) surging from .55% to 1.54% from early August to early March. It is a massive rise, but is it really a big deal? Before the covid plunge, the 10-year yield spent most of its time in the 1.5% to 4% range. Hardly a big deal. With the recent move above 1.5%, the 10-year yield is just getting back to the low end of its prior range. Give bonds a break. Just like the rest of us, bonds are trying to get back to their pre-covid routines.

While we are on the subject of bonds, notice that the 20+ Yr Treasury Bond ETF (_TLT) experienced a selling climax over the last few weeks and is extremely oversold. Also note that price is trading in a big support zone and in the 50-61.8% retracement zone. This is a recipe for at least an oversold bounce.

The next chart shows the Nasdaq 100 ETF (QQQ) in red and the 10-yr Yield in black. The green zones show when they rose together (positively correlated) and the blue zones show when they moved opposite each other (negatively correlated). The 10-year yield doubled in each of the three green zones and QQQ still moved to new highs.  

The indicator window shows the Correlation Coefficient, which is an attempt to quantify the relationship between the 10-yr yield and QQQ. It is positive when they move in the same direction and negative when they move in opposite directions. This indicator is all over the place and I do not see a clear-cut correlation one way or the other.

The charts suggest that the relationship between QQQ and the 10-year yield is fluid. Sometimes they are positively correlated and sometimes not. Sure, QQQ and the 10-year yield are negatively correlated over the last three weeks, but that does not mean they are always negatively correlated. Far from it. The moral of the story: Don't believe everything you hear, read or watch. Check the long-term evidence for yourself and then decide.

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