The negative correlation between Asian equities and US bond yields has broken down, as optimism about artificial intelligence overtakes concerns about the Federal Reserve’s next move.
(Bloomberg) — The negative correlation between Asian equities and US bond yields has broken down, as optimism about artificial intelligence overtakes concerns about the Federal Reserve’s next move.
The 60-day correlation coefficient between the MSCI Asia Pacific Index and the US 10-year Treasury yield turned slightly positive for the first time since August on Friday — to about 0.06 — after macro events’ hold on regional equities loosened in recent weeks. A reading of 1 indicates the assets are in perfect lockstep, and -1 would mean they move in the opposite direction. Numbers near zero indicate there’s little relationship between their moves.
The 10-year yield has dropped about 13 basis points this year, though at times fluctuated heavily amid changing expectations around the direction of Fed policy rates, concern about the US economy and still-high borrowing costs.
The Asia stocks measure has bounced around as well, but has gained about 9% in 2023. The zeroed-out relationship with the 10-year indicates that something else is holding sway. In this case, prospects for AI have fueled excitement for chipmaking and broader technology stocks.
If the situation continues, it may bode well for equities. Since 2014, periods of stronger positive correlation with Treasury yields have tended to coincide with a rise in regional stocks, according to data compiled by Bloomberg.
Read more: AI Proves Mightier Than the Fed for Stocks Divorced From Economy
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.