EUR/USD and US Treasury yields have been trading in nearly perfect inverse motion since March 15–most noticeably today, when EUR/USD tumbled two big figures from 110.50 to 108.50 while the 10-year yield blew out 14 basis points. News accounts point to a disappoint 7-year note auction as the source of the pain in the Treasury market, but yields were rising steadily before the auction. Poor auction result (lowest bid-to-cover ratio since July 2009) was probably effect rather than cause.


The chart above tracks 1-minute interval tick data for the past 11 sessions, showing a tight linear relationship between the 10-year note futures price (vertical axis) and the EUR/USD exchange rate (horizontal axis). The spur to the right of the scatter chart is today’s market action. That’s a break from the pattern of the past several months, when Treasury prices drifted higher as the Euro sank.

This suggests the market is looking for a bottom both in EUR/USD and the Treasury market. Global investors in dollar bonds are sitting on massive capital gains both in nominal price and currency terms. As the dollar gets more expensive, dollar bond holders lighten positions and vice versa.

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