Hello everyone, and welcome back to our weekly positioning update.

We are on rates and JPY watch this week with bonds selling off across the curve in the US, and USDJPY is truly on the move as a response—but it is still WAY too overbought if you compare current spot levels to the implied levels when using real-rate spreads as a predictor. The problem at this juncture is that the trend in USD real rates has turned for now, and markets are likely reacting to the direction of real rates rather than the actual level, as the carry obtained in USDJPY is still phenomenal. We need an August-like catalyst to firmly form a new downtrend in real rates, and the trends in USDJPY, gold, and silver at the moment are far too strong to bet against, in our opinion.

We have noticed how the correlation between stocks and bonds has flipped since the NFP print in early August, as the narrative has predominantly focused on the growth side of the equation since then. However, we are seeing somewhat of a reversal these days, with equities and precious metals reacting to the selloff in bonds with a lag.

Chart 1: The correlation between stocks and bonds has flipped (for now)