An important component of our financial market analysis is tracking how the price of one financial asset influences the price of another different, but related asset. Identifying these inter-market relationships facilitates a more robust analysis of the US financial landscape and its potential effect on financial market direction, while also identifying more individual investment opportunities across different types of financial assets (stocks, market sectors, bonds, foreign exchange and commodity prices).
The following (green text) is a chart and a short excerpt from our July 14th Asbury Alert entitled, Declining US Interest Rates In Q3 And Their Potential Effect On Asset Prices.
Asbury Research subscribers can click the link above to view the entire report.
Asbury Alert, Thursday July 14th 2011
Declining US Interest Rates In Q3 And Their Potential Effect On Asset Prices
Chart 6 plots the relative performance of the Utilities Sector since 1999 in the upper panel (blue line), and the CBOE 30-year T-Bond Index (TYX, indicating yield, black line) in the lower panel. The red highlights point out that these two series have been 70% inversely correlated to one another for more than a decade. Not shown is that this relationship has remained tight and stable at various intervals during this period, driven by the willingness of yield seeking investors to take on more credit risk when US interest rates are low.
Per the correlation, a Q3 decline in long term US Treasury yields should coincide with a shift in investor assets into, and relative outperformance by, the typically defensive Utilities Sector. Conversely, a rise in benchmark US interest is likely to coincide with a period of relative underperformance by Utilities.
That entire July 14th report, plus our latest analysis and outlook on the direction of US interest rates, is available to Asbury Research subscribers by logging into the Research Center via the button at the upper right corner of the screen.
Professional investors can learn more about our investment research right here on our website which includes sample reports, client testimonials, our 2010 market calls, and John Kosar’s recent appearances in the media.
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