June 12, 2000

In recent days, U. S. Treasury bill yields and the foreign exchange value of the dollar have been moving in the same direction. The positive correlation between the two has many analysts puzzled and concerned. To research the apparent anomaly, we studied data from the last two decades and found only three periods when the two variables moved in similar fashion. Furthermore, since these periods account for only six of the last twenty years, money managers should rightfully consider the correlation an anomaly. However, anomaly or not, we must make investment decisions and thus must try to figure out what the correlation means to the economy and financial markets.

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