The Tail Wagging the Panda
Since the beginning of the trade war between the United States and China, we’ve seen a rising correlation between U.S. Treasury yields and the Chinese Yuan. This isn’t all that surprising: as the conflict escalated and Washington struck a harder stance, the People’s Bank of China depreciated its currency in order to stimulate exports and the country’s economy. At the same time, investors fearing an economic downturn crowded into safe-haven assets such as US Treasuries, sending yields down.
With the phase 1 agreement officially on paper, the Chinese Yuan has returned to the level it was before the trade war hit its culmination point in August – on January 15th, the PBOC set the currency at 6.8845 USD/CNY (0.14525 CNY/USD), its strongest since the end of July last year. Yet the U.S. 10-year rate has only shown a mild upward trend in the past couple months, as investors are still pricing in an 85% chance of at least one cut by the Fed by the end of 2020. We’re not saying that there’s a causal relationship between the Yuan and U.S. Treasury rates – or that the tail should be wagging the proverbial panda – but, we believe that bond investors haven’t demonstrated enough optimism regarding the trade accord so far, and, hence, that interest rates in the U.S. are still too low.
Jean-Guy Mérette
Vice President and Portfolio Manager
Active and Strategic Fixed Income Team
Disclosures
This information is prepared by Fiera Capital Corporation (“Fiera Capital”) and is intended for use by residents of Canada only. The information and opinions expressed herein are provided for informational purposes only, are subject to change and should not be relied upon as the basis of any investment or disposition decisions. Past performance is no guarantee of future results. All investments pose the risk of loss and there is no guarantee that any of the benefits expressed herein will be achieved or realized. Valuations and returns are computed and stated in Canadian dollars, unless otherwise noted.
The information provided herein does not constitute investment advice and it should not be relied on as such. It should not be considered a solicitation to buy or an offer to sell a security. It does not take into account any investor’s particular investment objectives, strategies, tax status or investment horizon. There is no representation or warranty as to the current accuracy of, nor liability for, decisions based on such information. Any opinions expressed herein reflect a judgment at the date of publication and are subject to change. Although statements of fact and data contained in this presentation have been obtained from, and are based upon, sources that we believe to be reliable, we do not guarantee their accuracy, and any such information may be incomplete or condensed. No liability will be accepted for any direct, indirect or consequential loss or damage of any kind arising out of the use of all or any of this material.
Views expressed regarding a particular company, security, industry or market sector should not be considered an indication of trading intent of any funds or accounts managed by any Fiera Capital entity. Each entity of Fiera Capital only provides investment advisory services or offers investment funds in the jurisdictions where such member and/or the relevant product is registered or authorized to provide such services pursuant to an exemption from such registration.
Related Insights
Global Asset Allocation Team Market Update – May 2026
Canadian Yield Curve Overview
Global Asset Allocation Team Market Update – June 2026