Standard Chartered: Joint Rise in US Stocks and Treasury Yields Is Positive for Risk-Sensitive Currencies

October 27: Standard Chartered strategists said in a report that over the past 30 years, the most favorable market environment for risk-sensitive currencies has been a simultaneous rise in US stocks and US Treasury yields.

The strategists noted that in the early stages of an economic recovery, yields tend to be low, reflecting loose monetary policy and insufficient credit demand. As optimism about the economic growth outlook heats up, this shift is usually also reflected in stock markets, bond yields and currencies positively correlated with risk sentiment, including the Canadian dollar, Australian dollar, Norwegian krone, Mexican peso and New Zealand dollar.

The strategists said: “If rising yields reflect an increase in risk premiums or heightened inflation risks, this correlation may no longer be as reliable.”