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At 12:16 AM 9/23/97 -0700, Chip Anderson wrote:
>I'm easing into this stuff very slowly (and having lots of fun learning
>things in the process). This list has been very helpful so far. Thanks!
>
>Tonight, I thought I'd explore some of the "fundamental truths" (pun
>intended ;-) of the market. So I ploted the 5, 10, and 30 Year Treasury
>Bond Yield indices and compared them to Treasury Bond prices. I used
>Metastock's correlation indicator and (surprise!) they are almost perfectly
>negatively correlated!
>
>(Hey, I'm new at this and it was exciting to me...;-)
>
>Just for fun, I then correlated the 3 bond indices to each other (using
>20-period MAs to smooth things). The results surprised/confused me. For
>much of the time, they were positively correlated above .95 as expected.
> However, at the start of '95 and '96, there were huge spikes as the
>correlations dropped to between +.30 and +.60 respectively.
>
>You can see what I mean by looking at http://www.nwlink.com/~chipa/TYS.htm
> It is really quite dramatic.
>
>So why the spikes? They seem to start appearing just before long-term trend
>changes and near the start of the year. Am I seeing things? Why have none
>occurred in 1997 yet? What would it mean if one reappeared? Can someone
>back-test this before 1994 for me (Reuters doesn't have bond index data
>before then... sigh).
>
>If I had to guess, I'd say the the 30-year bond index turns sooner than the
>10 and 5 year indices whenever there is a major trend reversal. Is this
>true?
>
>Thanks for any insight,
>Chip
>
>P.S. Why doesn't Metastock's "Save As HTML" feature save color GIFs rather
>than B/W JPEGs? Seems wrong to me. Because of that, I had to create this
>web page by hand. :-(
>
>
Chip -
Welcome to our group and thanks for your thought-provoking contribution.
As I see it, the longer the term of an Interest-sensitive investment
instrument, the more the volatility in its price and, therefore, the Rate
of Return (interest on money invested in owning it) that it bears. Put
another way, 30-years should fluctuate more than 10-years, which should
move more than 5-years. However, in your web site's top graph, there is
less Correlation between the 30-year and 10-year than between the 30-year
and 5-year.
I can see lesser Correlation between different terms of the cost of
borrowing money as a sign of uncertainty of where interest rates will be in
the future from the point of that lesser Correlation. Greater Correlation
in this context suggests, to me, that the status quo will be maintained.
-- Frank :-)
High Return on Investment using Technical Analysis
http://www.usinternet.com/users/fbg/
Minnesota Long Distance Canoe Racing
http://www.usinternet.com/users/fbg/mnlong/
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