Yen and Long Bond moving in lock step.

[qwerty]

I was looking at the Yen and the Long Bond side by side and was struck by how positively correlated they have been over the past six months.

People will say "the carry trade" but I think that would create a negative correlation: Borrow Yen, sell them for USD, buy bonds => Selling Yen, Buying Bonds.

Take a look http://stockcharts.com/charts/performance/perf.html?$XJY,TLT

Slide the little bar at the bottom until it says 109 days. The daily correlation is quite striking.

Compare with setting the time frame to 278 days.

What is going on?

[Pilot Fish]

Re: Yen and Long Bond moving in lock step.

Just a guess . . .
Assets bought with borrowed yen extend far beyond just US treasuries. Most would be considered more "risky" then treasuries. So if the yen rises, risk aversion increases. People get nervous, unwind some carry trades and redirect the money into US treasuries; the old, so-called "flight to quality" play. Of course one could argue about the "quality" of a country with massive debt but that's another story.