Industrials (XLI) vs 10Y Treasury Yield
XLI (Industrial Select Sector SPDR Fund) tracks the industrial sector of S&P 500. April 2026 top weights: GE Aerospace ~5 percent, Caterpillar ~5 percent, RTX ~4 percent, Boeing ~4 percent, Honeywell ~4 percent, Union Pacific ~3 percent.
Also known as: Industrials (XLI) (ETF_XLI, industrials) · 10Y Treasury Yield (10Y yield, 10 year treasury, TNX)
Why This Comparison Matters
XLI (Industrial Select Sector SPDR Fund) tracks the industrial sector of S&P 500. April 2026 top weights: GE Aerospace ~5 percent, Caterpillar ~5 percent, RTX ~4 percent, Boeing ~4 percent, Honeywell ~4 percent, Union Pacific ~3 percent. The 10-year Treasury yield (FRED DGS10) sits at 4.31 percent. Industrials are cyclical sector that benefits from economic expansion. Rising 10Y yields often coincide with growth/expansion regimes that benefit XLI. Pre-2024 XLI had +0.30 to +0.55 correlation with 10Y (positively correlated). The 2024-2026 era saw XLI benefit from defense capex (Russia-Ukraine, Iran war, NATO 2.5-3 percent GDP target), aerospace recovery (Boeing 737 MAX recovery), and reshoring/infrastructure capex.
The April 2026 Configuration
XLI price approximately $130 (April 2026). 10Y yield 4.31 percent. Top weights: GE Aerospace ~5%, Caterpillar (CAT) ~5%, RTX ~4%, Boeing (BA) ~4%, Honeywell (HON) ~4%, Union Pacific (UNP) ~3%. Combined top 6 ~25%.
XLI composition: aerospace/defense (GE, BA, RTX, LMT, NOC, GD) ~22%; capital goods/machinery (CAT, DE, ROK, ITW, EMR, ETN, PH) ~25%; transports (UNP, CSX, DAL, UPS, FDX, NSC) ~15%; building products (CARR, OTIS, JCI) ~5%; conglomerates (HON, MMM) ~10%; environmental services (RSG, WM) ~5%; other (electrical, professional services) ~18%.
XLI rallied substantially in 2024-2026 era. 2024 +20%, 2025 strong, 2026 modest gains. Defense capex tailwind (NATO 2.5-3% GDP target, Iran war defense spending). GE Aerospace +50% past 12 months on engine demand recovery. Caterpillar benefited from infrastructure capex (CHIPS Act, IRA, data center construction). Boeing recovering from 737 MAX issues.
Forward-looking: continued elevated 10Y supports XLI through positive correlation. Defense spending continues. AI data center construction supports CAT (excavation), HON (controls), JCI (HVAC).
Why Industrials Are Positively Correlated to 10Y
XLI rate sensitivity differs from defensive sectors. Drivers.
Growth regime: rising 10Y often signals economic expansion. Industrials benefit from expansion (capex demand, transport volume, defense spending). Positive correlation.
Non-duration cash flows: industrials have current/near-term cash flows. Less duration drag than tech/REITs. Modest rate sensitivity.
Capex sensitivity: rising rates can compress capex investment plans. However, sector-specific capex narratives (data center construction, defense spending, electrification) have offset rate concerns.
Reshoring/infrastructure: CHIPS Act, IRA fiscal spending supports industrial capex. Supports XLI even with elevated rates.
Empirical: 100bp 10Y rise typically associated with 0-3 percent XLI move (modest, can be positive or negative depending on context). Compare to XLU/XLRE -8-12% on same shock.
The practical implication: XLI-vs-10Y captures growth/expansion regime indicator. Both rising = expansion regime confirmed.
How XLI and 10Y Diverge
10Y rising + XLI rallying: growth/expansion regime (current 2024-2026). Long XLI benefits.
10Y rising + XLI falling: stagflation or late-cycle capex fears. 1970s pattern. Defensive positioning.
10Y falling + XLI rallying: Fed-easing recovery + capex resumption. Long XLI.
10Y falling + XLI falling: confirmed recession. Risk-off.
Long-run correlation 0.30-0.55 (positively correlated). Strengthens during expansion regimes.
April 2026 setup: 10Y 4.31% + XLI near recent highs. Confirmed expansion regime. Long XLI through ETF or individual names.
How the Pair Performs Through Cycles
2007-2008: 10Y rose 4% to 5.25% Fed peak. XLI rallied through 2007 then crashed in 2008 GFC. Pattern: positive correlation during expansion, both fell in recession.
2010-2014 recovery: 10Y range 1.5-3.0%. XLI rallied substantially. Positive correlation.
2018-2019: 10Y rose 2.4% to 3.2% Q4 2018. XLI fell 22% Q4 2018. Stagflation fears. Then 10Y fell to 1.5%, XLI rallied. Positive correlation.
2020 COVID: 10Y to 0.5%. XLI -38% peak-to-trough. Both fell.
2022 hiking: 10Y 1.5% to 5.0% peak. XLI -20% peak-to-trough October 2022. Mixed (rate concerns + late-cycle).
2023-2026 expansion: 10Y elevated 4-5%. XLI rallied substantially (+30%+ peak-to-peak). Defense + AI data center capex drove gains.
How the Pair Performs in Stress
2008-09 GFC: XLI -50%. 10Y 4.5% to 2.0%. Both fell.
2020 COVID: XLI -38%. 10Y to 0.5%. Both fell.
2022 hiking: XLI -20%. 10Y 1.5% to 5.0%. XLI fell despite 10Y rise (stagflation fears).
2023 SVB: XLI -3%. Limited stress.
2024-2026 expansion: XLI rallied. 10Y elevated. Both rose.
2026 Iran war: XLI rallied (defense spending). 10Y elevated.
Pattern: XLI falls in pure recessions (2008, 2020). XLI underperforms during stagflation (2022). XLI outperforms during expansions.
Volatility and Trading
XLI realized volatility approximately 16-22 percent annualized. Beta to SPY ~0.95-1.10.
60-day rolling correlation between XLI and 10Y: 0.30-0.55 (positively correlated).
XLI exposure: XLI ETF or VIS (Vanguard Industrials). 10Y exposure: TLT or futures.
Pair returns. 2022 long XLI / short TLT mixed (XLI -20%, TLT -50%). 2024-2026 long XLI / long TLT or both long (XLI +30%+, TLT recovering). 2008-09 short both (recession).
Most actionable: ISM PMI manufacturing direction (leading indicator for XLI); defense spending announcements; CHIPS Act/IRA capex; data center construction; aerospace orders (Boeing, GE).
Reading the Pair as a Trading Tool
For macro allocators, XLI-vs-10Y provides growth/expansion regime classification.
10Y rising + XLI rallying: confirmed expansion (current April 2026). Long XLI benefits.
10Y rising + XLI falling: stagflation/late-cycle. Defensive positioning.
10Y falling + XLI rallying: Fed-easing recovery.
10Y falling + XLI falling: recession.
April 2026: confirmed expansion. Long XLI through ETF or individual names (GE, CAT, RTX, BA, HON, UNP). Watch ISM PMI, defense spending, infrastructure announcements, aerospace orders.
How XLI-vs-10Y Compares to Other Sector-vs-Rates Pairs
XLI/10Y captures industrial expansion regime. Compared.
Vs XLF/10Y: XLF positive rate sensitivity (NIM). XLI positive correlation but cyclical not rate-driven.
Vs XLE/10Y: XLE commodity-driven. XLI capex-driven.
Vs XLU/10Y: XLU bond proxy. Opposite preference.
April 2026 reading: 10Y 4.31% + XLI near recent highs. Expansion regime confirmed.
Forward View: Watch Defense and AI Capex
XLI ~$130 (April 2026). 10Y 4.31%. GE Aerospace ~5% of XLI; CAT ~5%; RTX ~4%; BA ~4%; HON ~4%; UNP ~3%. NATO 2.5-3% GDP defense target. CHIPS Act + IRA support industrial capex. AI data center construction supports CAT (excavation), HON (controls), JCI (HVAC).
Forward-looking: continued defense spending tailwind. AI data center capex multi-year. Aerospace recovery (Boeing 737 MAX). Infrastructure capex execution. 10Y stability at 4-4.5% supports XLI.
Key watches: ISM PMI manufacturing; defense budget announcements; CHIPS Act execution; aerospace orders; data center construction; Fed FOMC.
Risks: recession affecting capex; trade war escalation hurting industrial demand; Boeing supply chain issues; defense spending cuts.
The Industrial Capex Cycle
Industrial capex cycle drives XLI relative performance. 2024-2026 era multiple capex tailwinds.
Defense capex: NATO 2.5-3% GDP target plus Iran war response. Lockheed Martin (LMT), Raytheon (RTX), Northrop Grumman (NOC), General Dynamics (GD) benefit. 5-10 year multi-year tailwind.
Infrastructure: $1.2 trillion IIJA (Infrastructure Investment and Jobs Act 2021) execution through 2030. Bridges, roads, broadband, water systems. Supports CAT, DE (Deere), ROK (Rockwell Automation), URI (United Rentals).
Electrification: $369 billion IRA (Inflation Reduction Act 2022) renewable energy capex. Supports HVAC (CARR, JCI), industrial gases (LIN, APD), grid equipment (ETN, EMR), electrical (HUBB).
Reshoring: CHIPS Act ($52 billion semiconductor manufacturing) plus broader manufacturing reshoring. Supports HON, EMR, ROK, plus building products (Trane, JCI).
AI data center: hyperscaler capex on construction. CAT (excavation), HON (controls), JCI (HVAC), CARR (cooling).
April 2026 setup: multiple capex tailwinds active. XLI benefiting. Watch capex announcement cadence.
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 Industrials (XLI). Computed from 1,242 aligned daily observations ending .
Following these triggers, 10Y Treasury Yield rises 0.87% 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.
Following these triggers, 10Y Treasury Yield rises 1.37% on average over the next 5 sessions, versus an unconditional baseline of +0.50%. 125 qualifying events; 10Y Treasury Yield closed positive in 60% 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 XLI and the 10Y Treasury yield?+
XLI (Industrial Select Sector SPDR Fund) tracks industrial sector of S&P 500. April 2026 top weights: GE Aerospace ~5%, Caterpillar ~5%, RTX ~4%, Boeing ~4%, Honeywell ~4%, Union Pacific ~3% (top 6 ~25%). XLI price ~$130. 10Y Treasury yield 4.31%. Composition: aerospace/defense (GE, BA, RTX, LMT, NOC, GD) ~22%, capital goods/machinery (CAT, DE, ROK, ITW, EMR, ETN, PH) ~25%, transports (UNP, CSX, DAL, UPS, FDX, NSC) ~15%, building products (CARR, OTIS, JCI) ~5%, conglomerates (HON, MMM) ~10%, environmental services (RSG, WM) ~5%, other ~18%. 2024 +20%; defense capex tailwind; GE Aerospace +50% past 12 months; CAT benefits from infrastructure + data center construction.
Why are industrials positively correlated to 10Y?+
Growth regime: rising 10Y signals economic expansion. Industrials benefit from expansion (capex demand, transport volume, defense spending). Positive correlation. Non-duration cash flows: current/near-term cash flows. Less duration drag than tech/REITs. Capex sensitivity: rising rates can compress capex but sector-specific narratives (data center, defense, electrification) offset. Reshoring/infrastructure: CHIPS Act, IRA fiscal spending supports industrial capex. Empirical: 100bp 10Y rise = 0-3% XLI move (modest, can be positive). Compare XLU/XLRE -8-12%. April 2026 setup: 10Y 4.31% + XLI near recent highs. Expansion regime confirmed.
How do XLI and 10Y diverge?+
10Y rising + XLI rallying: growth/expansion regime (current 2024-2026). Long XLI benefits. 10Y rising + XLI falling: stagflation or late-cycle capex fears. 1970s pattern. Defensive positioning. 10Y falling + XLI rallying: Fed-easing recovery + capex resumption. 10Y falling + XLI falling: confirmed recession. Long-run correlation 0.30-0.55 (positive). Strengthens during expansion regimes. April 2026: 10Y 4.31% + XLI near recent highs. Confirmed expansion. Long XLI through ETF or individual names.
How does the pair perform through cycles?+
2007-2008: 10Y 4% to 5.25% Fed peak. XLI rallied 2007 then crashed 2008 GFC. Both fell in recession. 2010-2014 recovery: 10Y 1.5-3.0%. XLI rallied substantially. 2018-2019: 10Y 2.4% to 3.2% Q4 2018. XLI -22% Q4 2018 (stagflation fears). Then 10Y to 1.5%, XLI rallied. 2020 COVID: 10Y to 0.5%. XLI -38%. Both fell. 2022 hiking: 10Y 1.5% to 5.0% peak. XLI -20% peak-to-trough October 2022. Mixed (rates + late-cycle). 2023-2026 expansion: 10Y elevated 4-5%. XLI +30%+ peak-to-peak. Defense + AI data center capex drove gains.
How does the pair perform in stress?+
2008-09 GFC: XLI -50%. 10Y 4.5% to 2.0%. Both fell. 2020 COVID: XLI -38%. 10Y to 0.5%. Both fell. 2022 hiking: XLI -20%. 10Y 1.5% to 5.0%. XLI fell despite 10Y rise (stagflation fears). 2023 SVB: XLI -3%. Limited stress. 2024-2026 expansion: XLI rallied; 10Y elevated. Both rose. 2026 Iran war: XLI rallied (defense spending); 10Y elevated. Pattern: XLI falls in pure recessions (2008, 2020). XLI underperforms during stagflation (2022). XLI outperforms during expansions.
How is the pair traded?+
XLI realized volatility ~16-22% annualized. Beta to SPY ~0.95-1.10. 60-day correlation XLI-10Y 0.30-0.55 (positive). XLI exposure: XLI ETF or VIS (Vanguard Industrials). 10Y exposure: TLT or futures. 2022 long XLI / short TLT mixed (XLI -20%, TLT -50%). 2024-2026 long XLI / long TLT or both long (XLI +30%+). 2008-09 short both (recession). Most actionable: ISM PMI manufacturing direction (leading XLI indicator); defense spending announcements; CHIPS Act/IRA capex; data center construction; aerospace orders (Boeing, GE).
How is the pair used for trading?+
10Y rising + XLI rallying: confirmed expansion (April 2026). Long XLI benefits. 10Y rising + XLI falling: stagflation/late-cycle. Defensive. 10Y falling + XLI rallying: Fed-easing recovery. 10Y falling + XLI falling: recession. April 2026: confirmed expansion. Long XLI through ETF or individual names (GE, CAT, RTX, BA, HON, UNP). Watch ISM PMI, defense spending, infrastructure announcements, aerospace orders.
What drives the industrial capex cycle?+
2024-2026 multiple capex tailwinds. Defense: NATO 2.5-3% GDP target plus Iran war. LMT, RTX, NOC, GD benefit. 5-10 year multi-year tailwind. Infrastructure: $1.2T IIJA execution through 2030. Bridges, roads, broadband. Supports CAT, DE, ROK, URI. Electrification: $369B IRA renewable energy capex. Supports HVAC (CARR, JCI), industrial gases (LIN, APD), grid (ETN, EMR), electrical (HUBB). Reshoring: CHIPS Act $52B semi manufacturing. Supports HON, EMR, ROK, building products. AI data center: hyperscaler construction capex. CAT (excavation), HON (controls), JCI (HVAC), CARR (cooling). April 2026: multiple capex tailwinds active. XLI benefiting.
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