Link Between Stocks, Treasury Yields Weakest Since 2009

There’s been a lot of talk about whether higher yields will be good or bad for stocks–and not just from me. Well, at least one measure shows that investors have seriously reconsidered the relationships between stock prices and Treasury yields.

The 120-day correlation–which measures the strength of the link between two assets–between the SPDR S&P 500 ETF (SPY) and the 10-year Treasury yield has dropped to 16%, down from 58% three months ago and the lowest since August 28, 2009. A correlation of 100% means two assets move in lockstep, while a negative correlation means two assets tend to move in opposite directions. (Click for a larger image.)

To put that in plain English, investors have gone from betting that higher yields are good for stocks, to seriously questioning that relationship. Don’t be surprise to see the correlation turn negative soon, indicating that investors higher yields are bad for stocks.

Rising Treasury yields haven’t hit stocks with big dividends as hard as the overall market today. While the Dow Jones Industrials have fallen  1.2%, Verizon (VZ), which has a dividend yield of 4.2%, has dropped 0.3% to $48.75 today, while Pfizer (PFE), which has dividend yield of 3,2%, has fallen 0.1% to $29.01. Merck (MRK), which has a 3.5% dividend yield, is off  0.8% at $48.20.