Treasury Yields and the Fed: What Lower Rates Mean for Stocks and Industries

When the Federal Reserve tweaks interest rates, the ripple isn’t just in the bond market — entire industries feel the shift. Some sectors tend to thrive when borrowing gets cheaper, while others lag behind. Think of lower rates as fuel: tech companies may sprint ahead, finance might catch a tailwind, but real estate or manufacturing could stumble under the weight of long-term debt.

It’s worth noting that Treasury yields are not the same as the federal funds rate — but they are highly influenced by it. The Fed sets the overnight rate at which banks lend to each other, while Treasury yields are determined in the bond market. Still, shifts in Fed policy strongly shape expectations, which in turn push Treasury yields higher or lower.

To put this into numbers, I pulled market capitalization data from Yahoo Finance across major industries and compared it against U.S. Treasury yields published by the Fed. By doing this, we can see which sectors move in sync with interest rates — and which move in the opposite direction.

The two key tools here are correlation and Variation of Information:

• Correlation tells us how closely two things move together. A positive correlation means when yields rise, that sector tends to rise too; a negative correlation means it usually falls when yields go up.
• Variation of Information (VI), adapted to finance by Marcos López de Prado, is an information-theoretic measure originally developed in statistics. Instead of just looking at direction, it measures how much shared information exists between two variables. In practical terms, this is more indicative of predictive power: if VI is low, knowing how interest rates move tells you a lot about how a sector tends to behave. If VI is high, the two behave more independently, and one gives you little insight into the other.

In other words: correlation shows the direction and strength, while VI shows the informational overlap between markets and interest rates.

Armed with this, let’s break it down: how industries react in the short term (1-month yields), the medium term (5-year yields), and the long term (10-year yields) — and which sectors stand to gain the most if the Fed decides to cut.

Short Term: One-Month Yields and the Immediate Market Pulse

The one-month horizon shows the clearest winners: Technology (0.686, VI 0.845), Energy & Transportation (0.665, VI 0.773), and Finance (0.624, VI 0.775). These sectors not only move strongly with short-term yields but also have relatively low VI, meaning the relationship is consistent and offers predictive value.

On the flip side, Real Estate & Construction (-0.280, VI 0.886) is surprisingly negative. This suggests short-term rate shifts don’t help the sector much — its fortunes are more tied to medium- and long-term borrowing costs.

More curious are Life Sciences (-0.159, VI 0.966) and Trade & Services (-0.064, VI 0.934). Both have high VI, meaning their behavior is less predictable. The weak or negative correlations combined with high VI hint that short-term yield moves provide little useful information for these industries.

Takeaway: In the short term, liquidity-sensitive sectors like Tech, Energy, and Finance react clearly, while Real Estate, Life Sciences, and Services remain harder to read — their higher VI tells us they don’t share much short-run informational overlap with yields.

Medium Term: Five-Year Yields and Growth Expectations

In the five-year horizon, Finance (0.624, VI 0.799) and Technology (0.609, VI 0.867) remain clear winners, with Energy & Transportation (0.564, VI 0.814) also strongly aligned. Their relatively lower VI means movements in 5-year yields provide reliable signals for these sectors.

By contrast, Real Estate & Construction (-0.249, VI 0.896) and Trade & Services (-0.219, VI 0.920) show negative ties, suggesting higher medium-term yields weigh on long-duration projects and consumer spending. Life Sciences (-0.114, VI 0.955) and Industrial Applications (-0.109, VI 0.860) show weak links and higher VI, making them less predictable.

Takeaway: At the medium horizon, growth-sensitive sectors like Finance, Tech, and Energy track yields well, while real estate and consumer-related sectors appear disadvantaged.

Long Term: Ten-Year Yields and Structural Shifts

Over the ten-year span, Finance (0.541, VI 0.813) and Technology (0.440, VI 0.857) still hold positive ties, but the strength of correlation fades compared to shorter horizons. Energy & Transportation (0.269, VI 0.831) shows only a mild relationship, reflecting its cyclical but less structural dependency.

Negative correlations deepen for Trade & Services (-0.312, VI 0.887) and Real Estate & Construction (-0.292, VI 0.888), where long-term borrowing costs and consumer demand pressures weigh more heavily. Life Sciences (-0.148, VI 0.956) again appears weakly connected with high VI, underscoring low predictive value.

Takeaway: Long-term yields matter most for capital-intensive and consumer-driven sectors, which show consistent negative ties, while Finance and Tech remain the most positively aligned but less strongly than in the short run.

Comparing Across Horizons

The comparison highlights three key patterns:

1. Consistent Winners:
   • Finance and Technology show the strongest positive ties across all horizons, with relatively low VI. This means their reaction to yields is both predictable and sustained, making them the clearest beneficiaries of rate cuts.
   • Energy & Transportation is highly sensitive in the short and medium term, but its tie weakens over longer horizons.
2. Persistent Laggards:
   • Real Estate & Construction and Trade & Services are negatively correlated throughout, with the relationship deepening at longer horizons. These sectors remain structurally disadvantaged by higher borrowing costs and long-term consumer demand pressures.
3. Unclear or Independent Sectors:
   • Life Sciences and Manufacturing consistently show weak or negative correlations paired with high VI, meaning yields provide little predictive power for these industries.
   • Crypto Assets show no stable relationship — low correlations and middling VI suggest their performance is driven more by speculative dynamics than by Treasury yields.

Final Takeaway:

• In the short run, Tech, Finance, and Energy ride the wave of lower rates.
• Over the medium term, Finance and Tech maintain their edge, while Real Estate begins to struggle.
• In the long term, Finance stands out as the most reliable beneficiary, while Real Estate and Trade consistently lose out.