Important note. This content is published for educational and statistical purposes. It does not constitute investment advice under AMF / MiFID II regulations. Past performance is not indicative of future results.
What is Interest Rates?
The Interest Rates indicator is a composite that combines two dimensions: equity market valuation (real S&P 500 relative to its exponential trend) and long-term interest rate levels (10-year Treasury). It assesses whether market valuation is justified by the rate environment.
Unlike the Buffett Indicator, which measures an absolute ratio, Interest Rates uses a sum of standard deviations, capturing the dynamic relationship between valuation and rates.
Economic foundation: TINA vs TARA
The core principle rests on competition between equities and bonds.
TINA (There Is No Alternative): when rates are very low (< 2%), bonds offer derisory yields. Investors have no credible alternative and accept paying up for equities. High valuation can then be partially justified.
TARA (There Are Reasonable Alternatives): when rates are high (> 4%), bonds become attractive. An expensive equity market in a high-rate environment is a major risk: investors can easily switch to risk-free assets offering decent yields. This is the most dangerous combination.
The composite score is the sum of both z-scores. It peaks when the market is expensive and rates are high.
Interest Rates does not read rate levels alone. It reads the consistency between equity valuation and the rate environment — the TINA/TARA boundary.
How the signal is built
Component 1: S&P 500 valuation
ONELIX first computes real S&P 500 (inflation-adjusted) and establishes an exponential trend over the history since 1962. The deviation of the ratio (real S&P 500 / trend) from its historical mean is expressed in standard deviations. A positive deviation indicates overvaluation relative to the long-term trend.
Component 2: interest rate level
ONELIX uses the 10-year Treasury as a proxy for long rates. The deviation of the current rate from its historical mean is expressed in standard deviations. A positive deviation indicates high rates (TARA effect); a negative deviation indicates low rates (TINA effect).
Composite score and normalization
The composite score is the simple sum of both z-scores. ONELIX then builds a normalized indicator from 0 to 100% using a proprietary formula — the one displayed in the dashboard and integrated into the LIX.
The exact normalization formula and some robustness parameters are not published. The general logic (two components, sum of z-scores, 0–100% score) is documented.
Historical reading
The chart below presents the raw composite value of the Interest Rates score from 1962 to year-end 2025.
Interest Rates — composite score of equity valuation and long rates
Monthly values, January 1962 → December 2025
Sources: real S&P 500, 10-year Treasury (FRED DGS10), ONELIX raw Interest Rates score. Red bands: 15 major corrections tracked in ONELIX.
Historical scenarios
Since 1962, three major configurations have repeated:
- Expensive market + high rates (maximum risk): 1980, 2000, 2007 — very high composite score, toxic TARA combination
- Expensive market + low rates (moderate risk, TINA effect): 2020–2021 — high valuation partially justified by the lack of a bond alternative
- Cheap market + high rates (rare opportunity): 1982 — start of the post-Volcker bull market, attractive equities despite high rates
The ONELIX reading of Interest Rates
ONELIX reads Interest Rates as a measure of valuation / rate tension. A high score signals an expensive market in an environment where bonds offer a credible alternative — the riskiest TARA zone.
The signal becomes more robust when it converges with the yield curve, credit, valuation or volatility.
Across the 15 major corrections (≥ 19%) since 1962, the signal showed clear detection (≥ 75%) in roughly 20% of cases (1966, 1969, 2000), moderate signal (60–75%) in 27% (1973, 1980, 1998, 2025), and remained weak (< 60%) in 47% — notably 1987, 1990, 2008, 2011, 2018, 2020 and 2022. Best historical signal: 2000 (83%).
A high score means the rate environment is becoming restrictive for equity valuation. On its own, it is not enough to conclude that a correction is imminent.
Product preview. Frozen historical capture.
In the LIX composite score, interest rates are combined with the yield curve, credit, valuation, macro cycle and volatility. The ONELIX methodology details the normalization and aggregation logic.
Limits and vigilance points
Interest Rates is powerful for identifying zones where valuation is not justified by the rate environment, but it has important nuances.
- Imprecise timing: the market can stay overvalued for years (e.g. 1996–2000)
- Fed interventions: QE and unconventional policies distort the natural relationship between rates and valuation
- Real vs nominal rates: inflation changes the meaning of nominal rates (e.g. 1980 with 20% rates but high inflation)
- Prolonged TINA effect: sustained low rates (2010–2021) can support high valuations longer than historically
- Combined reading: cross-check with yield curve, credit, valuation and macro cycle
A high score signals valuation/rate tension, especially the toxic expensive-market + high-rates combination, but does not provide a correction date.
Explore Interest Rates in ONELIX
Interactive charts, drawdown statistics, historical zones and dedicated backtest.
Frequently asked questions
What does the Interest Rates indicator measure?
The consistency between real S&P 500 valuation and long-term rates (10-year Treasury), synthesized in an ONELIX score of 0–100%. A high score signals an expensive market in a restrictive rate environment.
What are TINA and TARA?
TINA (There Is No Alternative): low rates, equities remain attractive despite high valuation. TARA (There Are Reasonable Alternatives): high rates, bonds become a credible alternative — the riskiest zone for expensive equities.
Why combine valuation and rates?
An expensive market does not carry the same risk in every rate environment. The expensive market + high rates combination (1980, 2000, 2007) is historically the most toxic.
What are the data sources?
Real S&P 500 (inflation-adjusted, Shiller series), 10-year Treasury (FRED DGS10) and proprietary ONELIX calculation (sum of z-scores, 0–100% normalization).
Does it predict crashes?
No. It identifies valuation/rate tension zones and historical detection frequencies (20% / 27% / 47%), without market timing.
Can it be used alone?
No. It is more useful cross-checked with the yield curve, high yield spreads, valuation, macro cycle and volatility.