At the start of the COVID-crisis, we saw the USD and US 10 year yields move in negative correlation to one another. When 10-year yields rose, the USD fell. Why was this? This is because both were acting as safe-havens. A worried world wanted to buy US treasuries (this causes bond yields to fall) and they wanted the USD as the most liquid currency.

What changed?

Then in March, the world started to focus on the US growth story. This more optimistic footing allows US 10 year yields to rise alongside the USD.

Why has the above changed again?

Germany in extended lockdowns, oil prices falling, AstraZeneca roll-outs slowing + health scares have all led to the reflation trade being questioned. So, this is why we are seeing the COVID relationship between the US 10 year yields and the USD return.

So, in summary.

A worried world:

• Rising US 10 year yields – falling dollar
• Falling US 10 year yields – rising dollar

A world focused on US recovery:

• Rising US 10 year yields – rising dollar
• Falling US 10 year yields – falling dollar