USD vs UST correlation

nelsanity · Nov 21, 2009

When there is a flight to quality, everyone pours into UST's the USD strengthens because everyone needs the $ before they can buy the UST.

As the economy improves, there are these little fluctuations where you see investors move into more risk, UST sell off and the USD declines.

The interesting points (at least to me) are when the USD declines and the UST strengthens. Obviously this can happen when the Fed buys securities. But sometimes this has been happening after the Treasury repurchase program ended. Any thoughts?

Bernard111 · Nov 23, 2009

Quote from nelsanity:

When there is a flight to quality, everyone pours into UST's the USD strengthens because everyone needs the $ before they can buy the UST.

As the economy improves, there are these little fluctuations where you see investors move into more risk, UST sell off and the USD declines.

The interesting points (at least to me) are when the USD declines and the UST strengthens. Obviously this can happen when the Fed buys securities. But sometimes this has been happening after the Treasury repurchase program ended. Any thoughts?

During last end of the year flight to quality (Nov-Dec 08) , UST went strongly up while the EURUSD declined. Then the first quarter USD gained again waiting for the first US Tsy heavier auctions and it's losing for the remaining part of the year.

nelsanity · Nov 30, 2009

Quote from Bernard111:

During last end of the year flight to quality (Nov-Dec 08) , UST went strongly up while the EURUSD declined. Then the first quarter USD gained again waiting for the first US Tsy heavier auctions and it's losing for the remaining part of the year.

Yes but my post was aimed more at the divergence in correlation after Fed purchase program has ended.

bone · Dec 1, 2009

Another really strong consideration is the highly positive correlation between the Euro, energy, and the major stock indices.

This is all about the huge 'carry' trade that China keeps bitching about. The United States is still the largest manufacturer in the world (strange but true fact) and the weak dollar just helps that right along in terms of export value arbitrage. Since almost all of the manufacturing is highly automated, major manufacturers have seen elevated equity share values but employment hasn't followed along at all. Small cap manufacturers are less automated, so their share valuation relative to the large cap manufacturers hasn't kept up.

The weak USD will do more than anything to stem the tide of Chinese imports into the US, and increase US exports.

nelsanity · Dec 1, 2009

Quote from bone:

Another really strong consideration is the highly positive correlation between the Euro, energy, and the major stock indices.

This is all about the huge 'carry' trade that China keeps bitching about. The United States is still the largest manufacturer in the world (strange but true fact) and the weak dollar just helps that right along in terms of export value arbitrage. Since almost all of the manufacturing is highly automated, major manufacturers have seen elevated equity share values but employment hasn't followed along at all. Small cap manufacturers are less automated, so their share valuation relative to the large cap manufacturers hasn't kept up.

The weak USD will do more than anything to stem the tide of Chinese imports into the US, and increase US exports.

Not to pick a bone

but... the Yuan is pegged to the USD. Devaluation of the dollar doesn't impact US / China Trade, at least while the peg is in place.