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As of this writing, the 10-year T note yields 1.437%, on a steady 3-month downward trend (from 1.55-1.75% in recent months) while the S&P 500 is nearing all-time-highs. When these long-term bond yields decline, it is due to a rise in the price of bonds. The recent rise in price of these treasury bonds can be attributed to very strong demand at recent US Treasury auctions.

It appears to me that there is a sort of dissonance in the markets. Money often flows from one asset class to the other, either from bonds to stocks or stocks to bonds. The fact that bond yields are decreasing while stock prices are soaring can only mean that more money is being channeled into both the bond market and into the stock market. I would like to ask if my analysis and deduction is correct and if this phenomena is occurring as a result of excess liquidity provided by the massive monetary stimulus of the Federal Reserve?

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  • $\begingroup$ In the short term flows might matter but it is inconclusive. For example prices experience step changes: a gap up or a gap down, in which case there were no flows; just a revaluation. When the change is gradual, how would you know if the cause is flows or revaluation? $\endgroup$ – H2ONaCl Jun 11 at 4:18
  • $\begingroup$ @H2ONaCl Maybe I am too short-sighted. A 3-month timeframe may be a bit too short. The general trend since the pandemic shock has been rising 10Y yield and rising stock prices. The recent fall in the 10Y yield over the recent months may just be a short-term correction, or as you say, "revaluation" $\endgroup$ – Tan Yong Boon Jun 11 at 4:36

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