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Here are the main changes on the week:
- Front-end yields (3m, 2yr) have become more correlated with the curve, in particular 10s30. There was also an increase in correlation between nominal and real yields. Front-end yield to 5yr TIPS correlation is at a low historical extreme (Chart 1).
- The most sizeable changes on last week were in equities and credit. Correlation between the back-end of the curve (10s30s) and equities (S&P 500) rose, while correlation fell with credit (CDX). Equities and credit correlation to yields has moved away from July extremes and is now low (Chart 2).
- On FX, correlation between yields and USD/JPY remains positive and within 2014-16 ranges. Meanwhile, yields and USD/EUR are now broadly uncorrelated (Chart 3).
- Lastly, correlation between longer-term US yields and gold increased, moving further into negative territory. Correlation with the back-end of the curve became less positive. Relative to 2019 ranges, correlation between yields and gold is low (Chart 4).
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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.)
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