US Rates Correlation Monitor – Correlation Between Inflation Expectations And Yield Falls

Here are the main changes on the week:

• Front-end yields (3m, 2y) have become less correlated with the longer-term yields (30y) and the curve (5s30s, 10s30s).
• The positive three-month correlation between real and nominal yields has become stronger on last week. Meanwhile, inflation expectation correlations have fallen.
• On other assets, both credit (CDX) and equity correlations to yields have become less strong in the direction of risk-on equalling higher yields (i.e. up days in stocks = higher yields, but association is less pronounced).
• On FX, changes in USD/EUR, USD/CNH are now broadly uncorrelated with changes in front-end yields (-5% and -7%, respectively).
• Lastly, the positive correlation between oil and the yield curve has become more pronounced. Therefore, oil is moving higher with higher yields.

Bilal Hafeez is the CEO and Editor of Macro Hive. He spent over twenty years doing research at big banks – JPMorgan, Deutsche Bank, and Nomura, where he had various “Global Head” roles and did FX, rates and cross-markets research.

(The commentary contained in the above article does not constitute an offer or a solicitation, or a recommendation to implement or liquidate an investment or to carry out any other transaction. It should not be used as a basis for any investment decision or other decision. Any investment decision should be based on appropriate professional advice specific to your needs.)