Chart of the week

Dollar-Yield Disconnect?

Relevance:
The U.S. dollar (DXY Index) and 10-year Treasury yields have diverged sharply in 2025. While benchmark 10-year yields have climbed to 4.46%, the DXY has fallen roughly 10% since April, an unusual disconnect, as higher yields typically strengthen the dollar by attracting capital.

Investor confidence, however, has been shaken by President Trump’s escalating trade war, with tariffs on Chinese goods now around 50%, fuelling fears of slower growth and greater global uncertainty.

Sentiment is also weakening amid concerns over the U.S. fiscal outlook. Roughly $9 trillion in U.S. debt is set to mature this year, and refinancing at elevated yields will significantly raise interest costs. This is compounded by over $4.5 trillion in tax cuts and sluggish revenue growth.

Safe-haven Treasuries are losing appeal, not only due to fiscal risk, but also as Japan normalises policy and the yen loses its carry-trade role.

The chart also reflects a loss in U.S. dollar exceptionalism, where growth no longer offsets the drag from higher rates.

The yield-dollar divergence highlights mounting anxiety over U.S. fiscal sustainability and policy uncertainty, with risks to global markets if trends persist.

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