What does it look like when a central bank pimp slaps a market?

from my friend @mktstk about some of our common interests $MACRO $USDJPY $ZB_F $TLT and #ASIA


H/T to Rooster360 for beginning this conversation…

We have long been keen watchers of the complex relationships between Asian economies and the US Treasury curve. Early readers of this blog will remember more than a few rants about the Yen Carry Trade. In the past we have been vocal about the evolving correlation between the Yen and the 30 Year Bond. For most of this year this relationship has been firmly positive when measured from a price correlation standpoint.

Correlation is important because the volatility (or stability) of correlation represents the health of a market. Individual prices may go up, prices may go down, but if correlation stays stable then everything makes sense. Dealers can hedge their risk more easily when they can be assured that their hedges will actually perform as advertised. When correlation itself becomes volatile, liquidity decreases: market makers and dealers cannot easily…

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