Gavekal Capital: Long-End Of US Yield Curve Suggests A Stronger Yen

Wednesday, May 13, 2015

Long-End Of US Yield Curve Suggests A Stronger Yen

The relationship between the Japanese Yen and the spread between the US 30-year treasury yield and US 10-year yield has had a very tight negative correlation (-0.85) over the past 10-years (since 1986 when the bond spread series begins the correlation is -0.61). Since the end of March, the 30/10 spread has widened by 18 basis points to its widest levels in about 7 months. The Yen, meanwhile, is basically unchanged against the USD in the past two months. In 2012 after a divergence opened up, the yen began a multi-year period of weakness as it moved from 78 to 120. It will be worth watching if the divergence this time sparks a rally in the yen or if the long end of the yield curve is about to flatten out once again.

About Gavekal Capital

Gavekal Capital is a US registered investment advisory firm that manages the Gavekal Knowledge Leaders Strategy. Knowledge Leaders are a group of the world’s leading innovators with deep reservoirs of intangible capital. These companies often possess competitive advantages such as strong brand, proprietary knowledge or a unique distribution mechanism. Knowledge Leaders are largely service-based and advanced manufacturing businesses, often operating globally. Gavekal Capital seeks to identify the world’s leading knowledge companies through a proprietary process that analyzes corporate knowledge investments.
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