US Rates Correlation Monitor – FX and Front-End Yields Correlations Within Historical Ranges

Here are the main changes on the week:

• US 2y yields have become less correlated with the curve, in particular 10s30s. Front-end yields have shown a notable drop in correlations to real yields TIPs (Chart 1). This suggests inflation breakevens have been driving the shift in nominal yields.
• On FX, the correlation between yields and USD/CNH remains negative and within 2016-18 ranges and the correlation for USD/EUR is moving towards negative territory (Chart 2).
• Finally, the correlation between longer-term US yields and oil has slightly risen, moving further into positive territory. Relative to early 2020 ranges, correlation between yields and oil is low. (Chart 3).

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.)