Foreign Currencies and US 10y Treasury Yields

Since I explored the relationship between the Japanese Yen and the US 10y Treasury Yield on Friday, I thought it might be worthwhile to extend the exploration to a much broader range of currencies. I personally am most interested on how Asian Central Bank manipulation has affected the US 10y yield, and how if that changes what might be the impact to world markets. Please let me know your thoughts.

From TimelyPortfolio

From TimelyPortfolio

R code in GIST:

	require(quantmod)
	require(colorRamps)
	#get currency data from the FED FRED data series
	getSymbols("DEXKOUS",src="FRED") #load Korea
	getSymbols("DEXMAUS",src="FRED") #load Malaysia
	getSymbols("DEXSIUS",src="FRED") #load Singapore
	getSymbols("DEXTAUS",src="FRED") #load Taiwan
	getSymbols("DEXCHUS",src="FRED") #load China
	getSymbols("DEXJPUS",src="FRED") #load Japan
	getSymbols("DEXTHUS",src="FRED") #load Thailand
	getSymbols("DEXBZUS",src="FRED") #load Brazil
	getSymbols("DEXMXUS",src="FRED") #load Mexico
	getSymbols("DEXINUS",src="FRED") #load India
	getSymbols("DGS10",src="FRED") #load US 10y yield
	currencies<-merge(DEXKOUS,DEXMAUS,DEXSIUS,DEXTAUS,
	DEXCHUS,DEXJPUS,DEXTHUS,DEXBZUS,DEXMXUS,DEXINUS)
	colnames(currencies)<-c("Korea","Malaysia","Singapore","Taiwan",
	"China","Japan","Thailand","Brazil","Mexico","India")
	currencies<-na.omit(currencies)
	currencies.roc<-currencies/lag(currencies)-1
	currencies.roc[1,]<-0
	US10y.roc <- diff(DGS10, lag=1)
	US10y.roc[1,] <- 0
	curr.10y <- na.omit(merge(currencies.roc,US10y.roc))
	#chart.Correlation(curr.10y)
	#get rolling correlation of currencies versus the US 10y yield
	corr <- as.xts(apply(curr.10y[,1:10],MARGIN=2,FUN=runCor,y=curr.10y[,11],n=500),
	order.by=index(curr.10y))
	#order correlations by their ending value
	corr <- corr[, order(t(last(corr)),decreasing=TRUE)]
	#thanks Joshua Ulrich for showing me how to do this
	#stuff we reuse
	labs=colnames(corr)
	colors=ygobb(15)[3:12]
	#make plot
	layout(matrix(1:2, 2),heights=c(8,5))
	par(mar=c(2,4,4,5),oma=c(2,1,2,0))
	plot.zoo(corr,col=colors,lwd=2,screens=1,xlab=NA,ylab="Rolling Correlation",las=1)
	#this is the primary change Joshua Ulrich made
	#to allow a much nicer labelling of points on a right vertical margin
	axis(4, coredata(last(corr)),labels=FALSE)
	mtext(labs, 4, at=coredata(last(corr)), col=colors,las=1,line=1,cex=0.5)
	title(main="Foreign Currencies to US10y Yield
	Rolling 500 day (2-year) Correlation",cex.main=1.25,
	adj=0,outer=TRUE,line=-2)
	par(mar=c(4,4,2,4))
	barplot(last(corr),las=1,beside=TRUE,col=colors,
	names.arg=labs, ylab=NA,
	ylim=c(-0.5,0.5),cex.names=0.7,border="gray70")
	title(main="Latest 500-day (2-year) Correlation",
	cex.main=0.8,adj=0)

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