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The close relationship between the yields of the United States government bonds and the dollar has broken down as investors cool in US assets in response to the formulation of volatile policies of President Donald Trump.
Government loan costs and the value of the currency have tended to advance in the passage in recent years, with greater returns that generally indicate a strong economy and attract foreign capital tickets.
But since Trump’s “day of release” tariffs were announced in early April, the 10 -year yield has increased from 4.16 percent to 4.42 percent, while the dollar has fallen 4.7 percent against a basket of currencies. This month, the correlation between the two has fallen to their lowest level in almost three years.
“In normal circumstances, [higher yields] They are a sign of the American economy that works strongly. That is attractive to capital tickets in the United States, ”said Shahab Jalinoos, G10 FX Strategy Head in UBS.
But “if the yields are increasing because the US debt is riskier, due to tax concerns and the uncertainty of policies, at the same time, the dollar can weaken,” he said, a pattern that “was most frequently seen in emerging markets.”
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The “big and beautiful” fiscal invoice of the president, along with the recent reduction of Moody’s of the United States credit rating, has led the sustainability of the deficit to the most clear approach to investors and weighed bond prices.
The analysis of Torsten Sløk, chief economist of Apollo, suggested that the Ministry of Credit Exchange of the US Government, which reflect the cost of protecting a loan against non -compliance, negotiate at levels similar to Greece and Italy.
Trump’s attacks against the president of the Federal Reserve, Jay Powell, have also scared the market. The president summoned Powell to the White House this week and told the central banker that he was making an error by not reducing interest rates.
“The fortress of the US dollar comes in part of its institutional integrity: the rule of law, the independence of central banking and the policy that is predictable. These are the components that create the dollar as the reserve currency,” said Michael de Pass, head of global tariffs in the values of the city.
“The last three months have questioned it,” he said, adding that “an important concern for markets at this time is whether we are eliminating the institutional credibility of the dollar.”
The divergence between the yields of the treasure and the dollar represents a marked change of the pattern of recent years, when the expectations on the direction of monetary policy and economic growth had been crucial drivers of the costs of government loans.
The new pattern could increase the risks for investors looking for assets for paradise, said Andreas Koenig, head of Global FX in Amundi.
“This changes everything. In recent years, having the dollar in the portfolio … It was a very good stabilizer factor,” he said. “When the dollar is a equilibrium factor, it has a stable portfolio. If the dollar suddenly correlates, the risk increases.”
Investors wondered if there had been a fundamental change in correlations between asset classes, Goldman Sachs analysts wrote in a note on Friday.
“It is in the new concerns about … fed independence and fiscal sustainability where the asset pattern looks more clearly different,” they wrote.
“The recent phenomenon of dollar weakness along with higher yields and lower prices in equity … has raised a challenge for the two common portfolio hedges,” Goldman analysts added.
The weakest American currency depends partly on the assets of assets called dollars that are increasingly looking for these investments, taking a short position in the dollar in the process.
“The more political uncertainty there is, the more likely investors increase their coverage relations,” said Jalinoos de UBS.
“If coverage relations increase in existing dollar assets, they are talking about many billions of dollars for sale [the US dollar]”He added.
Goldman analysts suggested that investors should position themselves for the weakness of the dollar, especially against the euro, YEN and the Swiss Franco, all of which have increased in recent months. They added that “these new risks create a solid base for some allocation to gold.”
Additional reports from Louis Ashworth
