China Drives Treasuries as BlackRock Calls It Main Worry: Chart

Trying to predict where Treasury yields are headed? Start with Chinese stocks.

The weekly correlation between the benchmark Treasury 10-year yield and the Shanghai Composite Index climbed to 0.41 in the second half of last year, from minus 0.06 in the previous six months, as China’s currency devaluation sent shock waves through global financial markets. A figure of 1 would mean the two securities moved in lockstep, while minus 1 would mean they moved in exactly the opposite direction.

The Shanghai index has tumbled 19 percent in the past month amid signs growth in the world’s second-largest economy is slowing. The Treasury yield has tumbled 23 basis points in the same period as investors sought the safest assets.

“China has replaced Greece as the main worry for financial markets,” according to BlackRock Inc. the world’s biggest money manager with $4.6 trillion in assets. “It is fundamentally a much bigger deal. A depreciation of China’s currency, a sell-off in the country’s equity markets and declining confidence in Beijing policymakers are spooking global markets,” BlackRock said in a report, citing the views of investment specialists Richard Turnill, Nigel Bolton, Rick Rieder and Helen Zhu.

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