Flattening Yield Curve and Strong Dollar go Hand in Hand

With today's action in the bond market (30-year treasury yields made new 1-year lows, finishing down 6bps, and 10-year treasury bonds nearly made new 1-year lows, finishing down 4bps), the long end of the yield curve is the flattest it's been since the fall of 2009, with the 30-10 spread at 74bps. This flattening has predictably coincided with strength in the USD as chart 1 below shows. Given that the yield premium for 30s over 10s is still about 26bps above the long-term average (2nd chart below), we could easily conceive a continued flattening of the long-end of the yield curve and with it more strength in the dollar.