Core Insights - The report from CITIC Securities analyzes the impact of U.S. Treasury yields on U.S. stocks, non-U.S. sovereign bonds, and the dollar, highlighting the interconnectedness of global assets driven by economic and policy factors [1] Group 1: U.S. Treasury and Stock Correlation - The correlation between U.S. Treasuries and U.S. stocks is influenced by both the economic cycle and monetary policy [3] - Post-financial crisis, a "great moderation" period led to a negative correlation between U.S. Treasuries and stocks, with Treasuries serving as a risk hedge [3] - Since 2020, the correlation has shifted to positive, driven by rising inflation pressures, fiscal sustainability concerns, and global asset rebalancing [3] Group 2: Cross-Country Interest Rate Linkages - The analysis breaks down bond yields into short-term rate expectations and term premiums, showing a significant positive correlation between U.S. and Eurozone term premiums [4] - The U.S. and Eurozone account for over 60% of global cross-border debt investment, leading to stronger yield linkages compared to emerging markets [4] - Rising U.S. Treasury yields may pose contagion risks for Eurozone bond rates, while emerging markets are relatively insulated [4] Group 3: Dynamic Relationship with the Dollar - The report employs the "dollar smile" and "fiscal frown" frameworks to explain the dynamic between U.S. Treasury yields and the dollar index [5] - Under the "dollar smile" theory, the dollar tends to appreciate during deep recessions or strong expansions, while it weakens during periods of slowing growth [5] - Concerns over fiscal sustainability may lead foreign investors to reduce their U.S. asset allocations, resulting in high Treasury yields coexisting with a relatively weak dollar [5] Group 4: Future Considerations - U.S. Treasury yield fluctuations are becoming a core variable in global asset pricing, with their transmission mechanisms evolving with economic cycles and policy environments [5] - Investors are advised to closely monitor term premiums, cross-border capital flows, and fiscal policy dynamics to navigate the challenges and opportunities presented by global asset interconnectedness [5]