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Investing

Record low bond yields bad for stocks: Study

Traders on the floor of the New York Stock Exchange
Brendan McDermid | Reuters
Traders on the floor of the New York Stock Exchange

The yield on the U.S. 10-year Treasury note fell to a record low Tuesday and that's not a good thing for stock investors, if history is any guide. A CNBC PRO study of what works when Treasury yields plunge showed there are only a few stocks and ETFs that will post gains this month if rates continue their slide.

The 10-year yield, which ended 2015 at 2.30 percent, dropped to as low as 1.368 percent because of Brexit concerns sending investors into the safety of U.S. government bonds. Investors also believe the U.K. vote to leave the European Union may put the Fed on the sidelines for 2016 in terms of future interest rate increases.

Using data from Kensho, a tool designed to quantify historical events; CNBC PRO ran a study to find out how stocks could react to a further slide in the 10-year yield, specifically by 0.4 percentage point, which would take the yield below 1 percent.

We looked at all the times in the last decade when the 10-year yield has made a move of that magnitude in one month. It has occurred 25 times before and the results do not bode well for the market. Major market averages typically posted big losses during those months.

In those periods, just one of the major sector ETFs traded into the green: Utilities (XLU).

Similarly, among the individual Dow components, only two managed to post gains: Verizon and Coca-Cola, according to data from Kensho.

Among the worst performers, Financials got killed with Goldman Sachs and JPMorgan posting average losses greater than 7 percent during that month of falling yields.

Even though investors may be cheering Brexit woes which essentially put the Fed on hold right now, history shows this move lower in global bond yields may end on a sour note for stocks this month.

— CNBC's John Melloy contributed to this story.

Disclosure: NBCUniversal, parent of CNBC, is a minority investor in Kensho.