US Rates Correlation Monitor – Front-End Yield Correlations Jumpy

Here are the main changes on the week:

• US 2y yields have become less correlated with the curve, in particular 5s30s. Meanwhile, front-end yields have become more correlated to 5yr TIPS, but less correlated to 10yr TIPS. Correlation between US 2yr and 5yr TIPS remains at historical lows (Chart 1).
• Correlations with equity volatility (VIX) and bond volatility (MOVE) have decreased, remaining close to early 2018 levels (Chart 2). Nominal yields have become more correlated with inflation expectations.
• On FX, 3m correlations between yields and USD/CNH have moved in a more negative direction. Meanwhile, correlations to USD/JPY movements have become stronger (Chart 3).
• Finally, the correlation between yields and gold has turned less negative and the two are now broadly uncorrelated (Chart 4). Correlation with oil has also fallen.

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.

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