Risk-Sensitive Currencies Have Favored U.S. Stocks and Rising Treasury Yields

Over the past 30 years, currencies tied to investor risk appetite have tended to fare best when U.S. stocks and Treasury yields rise at the same time.

Early in an economic recovery, yields are often subdued as monetary policy stays loose and credit demand remains weak. As growth expectations improve, stocks, yields and currencies exposed to risk appetite can advance together.

Examples of those currencies include the Canadian and Australian dollars, Norway’s krone, Mexico’s peso and New Zealand’s dollar.

The pattern may be less reliable when yields climb because of inflation concerns or higher risk premiums.