Why does solar rise and fall with interest rates?
Solar stocks appear highly correlated to movements in the 10-year treasury yield.
The iShares 7-10 Year Treasury (IEF) has a -0.83 correlation with Guggenheim Solar (TAN) over the past 5 years.
The correlation is also high versus the 5-year treasury yield. TAN has a -0.83 correlation with PIMCO 3-7 Year U.S. Treasury (FIVZ) and a -0.84 correlation with TENZ. The last chart shows TAN versus the inverse of TENZ, price only (dividends excluded).
Intuitively, the opposite correlation would make the most sense, since solar projects often rely on cheap financing. Is solar more competitive at higher interest rates? Or are solar stocks pure risk on/risk off plays?
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