S&P 500 vs 10Y Treasury Yield
SPY (SPDR S&P 500 ETF) tracks the cap-weighted S&P 500 with current price $708. The 10-year Treasury yield (FRED DGS10) sits at 4.31 percent.
Also known as: S&P 500 ETF (SPY) (ETF_SPY, S&P 500, SPX, SP500) · 10Y Treasury Yield (10Y yield, 10 year treasury, TNX)
Why This Comparison Matters
SPY (SPDR S&P 500 ETF) tracks the cap-weighted S&P 500 with current price $708. The 10-year Treasury yield (FRED DGS10) sits at 4.31 percent. The stock-bond correlation has evolved. From 2000-2021: stocks and bonds typically moved inversely (stocks up, yields down). Post-2022: stocks and yields often rise together as markets focus on growth rather than duration. SPY forward earnings yield (1/22) approximately 4.5 percent; 10Y Treasury 4.31 percent. Equity risk premium (ERP) compressed to ~20 basis points (April 2026), well below 200-300bp historical norm. The compressed ERP reflects AI capex multiple expansion + persistent Fed restrictive policy. SPY/10Y relationship critical for asset allocation regime.
The April 2026 Configuration
SPY $708 (April 24 2026, YTD -2.5% from January 2026 levels). 10Y Treasury yield 4.31 percent. SPY forward P/E approximately 22x; forward earnings yield 4.5 percent. 10Y Treasury yield 4.31 percent. Equity risk premium (forward earnings yield minus 10Y) approximately 20bp.
Equity risk premium of 20bp is among lowest readings since 2007 (peak ERP compression preceded GFC). Historical ERP averages 200-300bp. Compressed ERP reflects AI capex multiple expansion (SPY P/E rose from 19x to 22x in 2024-2025) combined with elevated 10Y (4-5% range).
SPY YTD performance: -2.5% from start of 2026 reflecting Iran war drag (peaked $720+ early 2026, fell to $688 lows in March/April). Recovered to $708 as ceasefire stabilized.
10Y in 4-4.5% range through 2024-2026. Term premium expanded; fiscal trajectory concerns; persistent inflation (core CPI 2.6%, supercore 4%, Michigan 5-year 3.5%). Fed paused at 3.50-3.75% since December 2024.
The combined April 2026 reading: stocks and bonds both elevated. Compressed ERP suggests stretched valuation. AI capex narrative + Fed restrictive policy creates unusual configuration.
The Evolution of Stock-Bond Correlation
Stock-bond correlation has evolved across regimes.
1980-2000 era: positive correlation. Both moved together with inflation regime. Volcker disinflation lifted both stocks and bonds.
2000-2021 era: negative correlation. Classic 60/40 portfolio era. Stocks up, yields down (and vice versa). Disinflation + Fed put + low inflation expectations.
2022-present era: positive correlation re-emerged. Stocks and yields often rise together. Drivers: (1) inflation regime re-anchored above 2%; (2) AI capex narrative supports stocks despite higher rates; (3) fiscal trajectory concerns push both yields and equity multiples; (4) global liquidity dynamics.
The practical implication: 60/40 portfolio diversification benefit weakened post-2022. Both stocks and bonds can fall together (2022 era) or rise together (2024-2026). Dynamic correlation requires rebalancing frequency increase.
60-day rolling correlation between SPY returns and 10Y yield changes: 2000-2021 typically -0.30 to -0.45 (negative). 2022-2026 swung between +0.30 to -0.30 (variable). April 2026 approximately +0.10 (modest positive).
Equity Risk Premium Mechanics
Equity Risk Premium (ERP) is forward earnings yield minus 10Y Treasury yield.
April 2026: SPY forward P/E 22x = forward earnings yield 4.5%. 10Y 4.31%. ERP = 4.5% - 4.31% = 0.19% (19bp).
Historical ERP norms: 200-300bp average over multi-decade history. Multiples premium for equity risk over risk-free rate. Compressed ERP signals stretched equity valuation.
ERP compression history. 2007 pre-GFC: ERP fell to near zero (peak compression). 2008 crash followed. 2000 dot-com peak: ERP -100 to -200bp negative. Crash followed. 2024-2026: ERP compressed to 0-50bp range. AI capex narrative driving multiple expansion.
ERP normalization paths. Multiple compression (SPY P/E 22x to 18-20x): would lift ERP to 100-200bp. SPY would need to fall 10-20% absent earnings growth offset. Yield decline (10Y from 4.31% to 3.5%): would lift ERP to 100bp. Treasury rally bullish for SPY relative. Earnings growth (EPS +15-20%): would lift ERP through forward yield numerator. Bullish for SPY. Combination most likely.
The practical implication: April 2026 ERP near record lows historically. Either multiples compress, yields fall, or earnings grow substantially. Watch for inflection.
How SPY and 10Y Diverge
SPY and 10Y diverge across regime types.
Growth regime: both rise together. Rising 10Y reflects expansion; SPY benefits from earnings growth. Current 2024-2026 + 2017-2019 era. Positive correlation.
Duration regime: SPY falls when 10Y rises. Multiple compression dominates. 2022 prototype. Inflation surge + Fed hiking. Both fell together.
Flight-to-safety: SPY falls + 10Y falls. Pure risk-off (2008 GFC, 2020 COVID flash crash). Negative correlation.
Fed-easing recovery: SPY rises + 10Y falls. Classic Fed put era (2009-2021). Negative correlation.
April 2026 setup: SPY recovering (+8% from April lows) + 10Y stable. Mixed signals. Iran war moderating supports both.
Long-run correlation between SPY and 10Y varies by regime. 2000-2021 -0.30 to -0.45 (negative). 2022-2026 -0.30 to +0.30 (variable). April 2026 +0.10 (modest positive).
How the Pair Performs Through Cycles
2000-2003 dot-com crash: SPY -47% peak-to-trough (October 2002). 10Y fell 6.8% to 3.1%. Both fell. Recovery: SPY rallied; 10Y stable. Negative correlation.
2003-2007 expansion: SPY +90%. 10Y rose 3.1% to 5.25% (Fed peak). Positive correlation.
2008-2009 GFC: SPY -57% peak-to-trough. 10Y 5.25% to 2.0%. Both fell.
2009-2019 disinflation expansion: SPY +400%. 10Y 1.5-3.0% range. Negative correlation (SPY up, yields range-bound).
2020 COVID flash crash: SPY -34%. 10Y to 0.5%. Both fell.
2020-2021 recovery: SPY +95%. 10Y rose 0.5% to 1.7%. Positive correlation (Fed put era).
2022 hiking + bear market: SPY -25% peak-to-trough October 2022. 10Y rose 1.5% to 4.5%. Both fell. Anomalous.
2023-2026 AI bull: SPY +51% from January 2024 levels to 2025 highs. 10Y range-bound 3.6-5.0%. Positive correlation.
2026 Iran war: SPY -8% peak-to-trough then recovered. 10Y modestly higher. Mixed.
The pattern: stock-bond correlation depends on inflation regime. Disinflation + Fed put era = negative correlation. Inflation regime + Fed restrictive = positive correlation.
How the Pair Performs in Stress
2008-09 GFC: SPY -57%. 10Y 5.25% to 2.0%. Both fell (negative correlation flight-to-safety).
2011 European debt: SPY -19%. 10Y 3.7% to 1.7%. Both fell.
2020 COVID: SPY -34%. 10Y to 0.5%. Both fell.
2022 hiking: SPY -25% peak-to-trough October 2022. 10Y rose 1.5% to 4.5%. Both fell (anomalous - duration regime).
2023 March SVB: SPY -5%. 10Y briefly fell.
2024-2026 AI era: SPY rallied substantially. 10Y elevated.
2026 Iran war: SPY -8%. 10Y stable. Modest stress.
The pattern: 60/40 portfolio diversification works in disinflation regimes (2008, 2020 - bonds rallied as stocks fell). 60/40 broke in 2022 (both fell on inflation surge). April 2026 mixed but positive correlation tendency.
Volatility and Trading
SPY realized volatility approximately 13-18 percent annualized. 10Y yield volatility 80-150bp annualized.
60-day rolling correlation between SPY and 10Y averages 0 to +0.30 in 2024-2026 (modest positive). Pre-2022 -0.30 to -0.45 (negative). Inflation regime change shifted correlation.
SPY exposure: SPY ETF, IVV, VOO, futures (ES, MES). 10Y exposure: TLT, IEF, 10Y futures (TY).
For pair-trading: 60/40 portfolio classic. Long SPY + long TLT in disinflation regime (negative correlation provides diversification). Long SPY + short TLT in growth regime (both rise together).
April 2026 setup: 0/+0.30 correlation. Diversification benefit modest. Watch regime indicators (inflation, Fed policy, AI capex sustainability).
Reading the Pair as a Trading Tool
For macro allocators, SPY-vs-10Y provides regime classification.
Disinflation/Fed put regime (1990s-2021): SPY up + 10Y down (negative correlation). Long 60/40.
Growth/expansion regime (current 2024-2026): SPY up + 10Y up (positive correlation). Long SPY, short TLT.
Duration/inflation regime (2022): SPY down + 10Y up (positive correlation, both fall). Defensive positioning.
Flight-to-safety/recession regime (2008, 2020): SPY down + 10Y down. Long TLT, short SPY.
April 2026: growth regime modulating between sub-regimes. AI capex supports SPY; elevated 10Y persists. Equity risk premium compressed.
Key watches: inflation prints (CPI, PCE, Michigan); Fed policy (FOMC May 6-7); equity earnings (Q1 2026 Big Tech April-May); AI capex announcements; geopolitical (Iran ceasefire stability).
How SPY-vs-10Y Compares to Other Stock-Bond Pairs
SPY/10Y captures broad equity-rates relationship. Compared.
Vs SPY/30Y: 30Y captures more pure duration sensitivity. Less Fed-policy responsive.
Vs SPY/2Y: 2Y captures Fed policy expectations. Different signal.
Vs sectors/10Y (XLK, XLF, XLU): different sector sensitivities. SPY aggregates.
Vs TLT/SPY directly: inverse relationship typically. Captures classic 60/40.
April 2026 reading: 0/+0.30 correlation. Compressed ERP near record lows. Pair complements XLK/10Y (AI capex), XLF/10Y (NIM), XLU/10Y (bond proxy + data center) for comprehensive sector cycle read.
Forward View: Watch ERP Normalization
SPY $708 (April 24 2026), 10Y 4.31%. SPY forward P/E 22x = forward earnings yield 4.5%. ERP 19bp (compressed near record lows). YTD SPY -2.5%.
Forward-looking through 2026: ERP normalization paths. Multiple compression (P/E 22x to 18-20x) would lift ERP to 100-200bp. SPY -10% to -20% absent earnings offset. Yield decline (4.31% to 3.5%) would lift ERP to 100bp. Treasury rally bullish for SPY relative. Earnings growth (+15-20% EPS) would lift ERP through forward yield numerator.
Key watches: Q1 2026 Big Tech earnings (Microsoft April 23, Meta April 30, Alphabet, Amazon, Apple May). Inflation prints (CPI April release mid-May, PCE late April for March). Fed FOMC May 6-7, June 17-18. AI capex sustainability. Geopolitical (Iran ceasefire).
Key risks: AI capex disappointment compressing tech multiples. Fed surprise hawkish pivot. Inflation re-acceleration. Geopolitical escalation. Recession trigger. Compressed ERP suggests vulnerability.
The Federal Reserve Reaction Function
Fed reaction function drives SPY-10Y correlation regime.
Fed put era (2009-2021): Fed cuts rates aggressively when SPY falls. Provides downside protection. Stocks and bonds inversely correlated.
Inflation-fighting era (2022): Fed hikes rates aggressively even as SPY falls. No put. Both fell together. Anomalous regime.
2024-2026 selective Fed: Fed cut 100bp September-December 2024 then paused. Awaiting inflation evidence. SPY-10Y correlation variable.
Fed framework. Sustained core PCE below 2.5% + supercore below 3.5% = Fed cuts. Bullish SPY (Fed put returns). 10Y likely to fall (compressed). Negative correlation.
Sustained inflation 3%+ = Fed pause continues. SPY supported by AI capex but no Fed put. 10Y elevated. Variable correlation.
Inflation re-acceleration = Fed potential hiking. Anomalous regime risk. Both could fall.
April 2026 setup: Fed paused at 3.50-3.75%. Inflation core PCE 3.0% (above target). Supercore 4% (stuck). Awaiting evidence. Configuration: Fed put modest, equity vulnerability moderate.
Conditional Forward Response (Tail Events)
How 10Y Treasury Yield has historically behaved in the 5 sessions following a top-decile or bottom-decile daily move in S&P 500 ETF (SPY). Computed from 1,242 aligned daily observations ending .
Following these triggers, 10Y Treasury Yield rises 0.50% on average over the next 5 sessions, versus an unconditional baseline of +0.50%. 125 qualifying events; 10Y Treasury Yield closed positive in 50% of them.
Following these triggers, 10Y Treasury Yield rises 1.06% on average over the next 5 sessions, versus an unconditional baseline of +0.50%. 125 qualifying events; 10Y Treasury Yield closed positive in 55% of them.
Past behavior in the tails is descriptive, not predictive. Mean response is the simple arithmetic mean of compounded 5-day forward returns following each trigger event; baseline is the unconditional mean across the full sample window. Edge measures the gap between the two.
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Frequently Asked Questions
What are SPY and the 10Y Treasury yield?+
SPY (SPDR S&P 500 ETF) tracks cap-weighted S&P 500 with current price $708 (April 24 2026, YTD -2.5%). 10-year Treasury yield (FRED DGS10) 4.31% April 2026. SPY forward P/E ~22x; forward earnings yield 4.5%. Equity Risk Premium (ERP) ~20bp (compressed near record lows). Historical ERP averages 200-300bp. SPY YTD -2.5% reflects Iran war drag (peaked $720+ early 2026, fell to $688 lows March/April). Recovered to $708 as ceasefire stabilized. 10Y in 4-4.5% range through 2024-2026 (term premium expansion, fiscal trajectory concerns, persistent inflation core CPI 2.6%, supercore 4%, Michigan 5-year 3.5%). Fed paused 3.50-3.75% since December 2024.
How has stock-bond correlation evolved?+
1980-2000 era: positive correlation. Inflation regime with both moving together. Volcker disinflation lifted both. 2000-2021 era: negative correlation. Classic 60/40 portfolio era. Stocks up, yields down (and vice versa). Disinflation + Fed put + low inflation expectations. 2022-present era: positive correlation re-emerged. Stocks and yields often rise together. Drivers: inflation regime re-anchored above 2%; AI capex narrative supports stocks despite higher rates; fiscal trajectory concerns push both; global liquidity dynamics. 60/40 portfolio diversification benefit weakened post-2022. 60-day correlation: 2000-2021 -0.30 to -0.45 (negative); 2022-2026 +0.30 to -0.30 (variable). April 2026 ~+0.10 (modest positive).
What is the Equity Risk Premium?+
ERP = forward earnings yield minus 10Y Treasury yield. April 2026: SPY forward P/E 22x = forward earnings yield 4.5%. 10Y 4.31%. ERP = 4.5% - 4.31% = 0.19% (19bp). Historical norms: 200-300bp average over multi-decade history. Compressed ERP signals stretched equity valuation. ERP compression history: 2007 pre-GFC ERP near zero (peak compression). 2008 crash followed. 2000 dot-com peak: ERP -100 to -200bp negative. Crash followed. 2024-2026: ERP compressed 0-50bp. AI capex narrative driving multiple expansion. Normalization paths: P/E 22x to 18-20x lifts ERP to 100-200bp (SPY -10-20%); 10Y 4.31% to 3.5% lifts ERP to 100bp (Treasury rally bullish SPY); earnings +15-20% EPS lifts ERP through numerator.
How do SPY and 10Y diverge?+
Growth regime: both rise (current 2024-2026 + 2017-2019). Rising 10Y reflects expansion; SPY benefits from earnings growth. Positive correlation. Duration regime: SPY falls when 10Y rises (2022 prototype). Multiple compression dominates. Inflation surge + Fed hiking. Both fell. Flight-to-safety: both fall (2008 GFC, 2020 COVID flash crash). Negative correlation. Fed-easing recovery: SPY rises + 10Y falls (2009-2021 Fed put era). Negative correlation. April 2026: SPY recovering (+8% from April lows) + 10Y stable. Mixed signals. Iran war moderating supports both.
How does the pair perform through cycles?+
2000-2003 dot-com crash: SPY -47% peak-to-trough. 10Y 6.8% to 3.1%. Both fell. 2003-2007 expansion: SPY +90%. 10Y 3.1% to 5.25%. Positive correlation. 2008-2009 GFC: SPY -57%. 10Y 5.25% to 2.0%. Both fell. 2009-2019 disinflation: SPY +400%. 10Y 1.5-3.0% range. Negative correlation. 2020 COVID flash crash: SPY -34%. 10Y to 0.5%. Both fell. 2020-2021 recovery: SPY +95%. 10Y 0.5% to 1.7%. Positive correlation (Fed put era). 2022 hiking: SPY -25%. 10Y 1.5% to 4.5%. Both fell. Anomalous. 2023-2026 AI bull: SPY +51% to 2025 highs. 10Y range-bound 3.6-5.0%. Positive correlation. Pattern: stock-bond depends on inflation regime.
How does the pair perform in stress?+
2008-09 GFC: SPY -57%. 10Y 5.25% to 2.0%. Both fell (negative correlation flight-to-safety). 2011 European debt: SPY -19%. 10Y 3.7% to 1.7%. Both fell. 2020 COVID: SPY -34%. 10Y to 0.5%. Both fell. 2022 hiking: SPY -25% peak-to-trough October 2022. 10Y rose 1.5% to 4.5%. Both fell anomalous (duration regime). 2023 March SVB: SPY -5%. 10Y briefly fell. 2024-2026 AI era: SPY rallied; 10Y elevated. 2026 Iran war: SPY -8%. 10Y stable. Modest stress. Pattern: 60/40 diversification works in disinflation regimes (2008, 2020). 60/40 broke 2022 (both fell on inflation surge). April 2026 mixed but positive correlation tendency.
How is the pair traded?+
SPY realized volatility ~13-18% annualized. 10Y volatility 80-150bp annualized. 60-day correlation 0 to +0.30 in 2024-2026 (modest positive); pre-2022 -0.30 to -0.45 (negative). Inflation regime change shifted correlation. SPY exposure: SPY ETF, IVV, VOO, futures (ES, MES). 10Y exposure: TLT, IEF, 10Y futures (TY). 60/40 portfolio classic: long SPY + long TLT in disinflation regime (diversification). Long SPY + short TLT in growth regime (both rise together). April 2026: diversification benefit modest. Watch regime indicators (inflation, Fed policy, AI capex sustainability).
How does the Fed reaction function affect the pair?+
Fed put era (2009-2021): Fed cuts rates aggressively when SPY falls. Provides downside protection. Stocks and bonds inversely correlated. Inflation-fighting era (2022): Fed hikes aggressively even as SPY falls. No put. Both fell together. Anomalous regime. 2024-2026 selective Fed: Fed cut 100bp September-December 2024 then paused. Awaiting inflation evidence. Variable correlation. Sustained core PCE below 2.5% + supercore below 3.5% = Fed cuts return (bullish SPY, 10Y falls, negative correlation). Sustained inflation 3%+ = Fed pause continues (SPY supported by AI but no Fed put, 10Y elevated, variable). Inflation re-acceleration = potential hiking (anomalous, both could fall). April 2026: Fed paused 3.50-3.75%. Inflation core PCE 3.0%, supercore 4%. Configuration: Fed put modest, equity vulnerability moderate.
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