Our US bond strategists anticipate a long-run bull market in the US dollar. This will act as a major headwind for USD-denominated sovereign debt.
The recent performance of sovereign debt relative to US credit has bucked its traditional correlations with the dollar. The beta between sovereign excess returns and the dollar has moved into positive territory. Historically, the correlation does not remain at these levels for long and sovereign debt should underperform as the more typical negative correlation is re-established.
This post was published at FinancialSense on 10/31/2016.