Treasury/Equity Correlation

Wednesday, May 27, 2009

Today's Treasury auction results led to a significant sell-off in the equity markets. Active traders would be well-advised to continue watching this relationship closely in the coming weeks. Fears of a US government debt downgrade are festering. The Federal Reserve's burgeoning balance sheet will not be able to absorb all of the Treasury's offerings and yields will rise. Increased volatility in the bond market will likely have major impacts on stock prices. Tomorrow, watch the 1:00 PM EST release of the 7-year note auction of $26 billion. An easy way to monitor this relationship is through the TLT exchange-traded fund.


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