US Rates Correlation Monitor – Nominal And Real Yields Diverge

Here are the main changes on the week:

• US 2y yields have become more correlated with the curve, in particular 5s30s. 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/JPY remains positive and within 2014-16 ranges, but the correlation is much lower for USD/EUR (Chart 2).
• Finally, the correlation between longer-term US yields and gold has become less negative. That is higher yields are less likely to be associated with lower gold. (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.

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