US Dollar Decouples With 10-Year Treasuries As Trade Tensions Change Long-Standing Relationships Between Asset Classes

While the U.S. Dollar and Treasury yields have moved in the same direction in the past, this pattern has seen a significant divergence since April 2025, affecting the long-standing relationship between these asset classes.

What Happened: According to the data, since the “Liberation Day” tariffs on April 2, the 10-year note yield has risen by +27 basis points, to 4.43%.

Whereas, the Dollar Index has slipped from 103.81 on April 2nd to 98.86 as of today, falling by 4.77% in the same period.

This decoupling is the result of a confluence of factors. According to the AI-powered financial management application, Alva, “Rising yields usually mean a stronger dollar, but now it's deficit anxiety, Moody's downgrades, and trade war risk driving global capital to safer havens like gold and the franc.”

Economist Peter Schiff said in an X post that the divergence was also a result of the fact that “Treasuries are now considered a risk asset.”

“When the threat is inflation and a weak dollar, there’s no safety in Treasuries,” he added.

According to LPL Research, “Treasury yields are primarily a function of growth and inflation expectations, so as the economic data goes, so go Treasury yields.”

The note also highlighted that several obstacles are preventing the Federal Reserve from cutting rates, “but if the economic data starts to show a weakening economy, particularly with this week’s jobs report, Treasury yields will likely fall from elevated levels.”

“Until the economic data softens, we think volatility in the Treasury market is here to stay, which should allow markets to price in more rate cuts from the Fed,” the LPL note added.

Why It Matters: As of the publication of this article, the U.S. Dollar Index was 0.13% higher at 98.86, whereas the 10-year Treasury bond yield stood at 4.43%.

In an earlier post from April, Jim Bianco, the president and founder of Bianco Research LLC, highlighted that the divergence of rising yields and weakness in the U.S. dollar was a "measure of stress in markets.”

"Higher rates are not supporting the dollar right now. This means they might have to go a lot higher to stop the dollar from falling," he added.

Price Action: The SPDR S&P 500 ETF Trust SPY and Invesco QQQ Trust ETF QQQ, which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Monday. The SPY was up 0.56% at $592.71, while the QQQ advanced 0.79% to $523.21, according to Benzinga Pro data.

The futures of the S&P 500, Nasdaq 100, and Dow Jones declined on Tuesday.

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