Kamin reports shift in dollar sensitivity to relative yield-curve slopes

In his dollar yield curve nexus analysis, Steven B. Kamin reports that the dollar’s sensitivity to the difference between US and foreign yield-curve slopes shifted from mostly positive to negative after April 2025. Kamin argues that the change means higher long-term US yields may be read by investors as compensation for risk rather than as a signal of more attractive returns.

The analysis was published by the American Enterprise Institute on September 22 and presented there as a Barron’s commentary. Econbrowser later republished excerpts under a different headline. Kamin’s conclusion is an interpretation of a statistical relationship, not a finding that identifies the cause of higher Treasury yields or dollar movements.

What does Kamin’s dollar and yield-curve analysis show?

Kamin examined daily changes in the logarithm of the DXY dollar index, which tracks the dollar against a weighted group of major advanced-economy currencies. His regression includes three inputs: the gap between US and foreign two-year sovereign yields; the difference between the slope of the US yield curve and foreign yield curves; and the VIX, a measure of stock-market volatility.

The yield-curve slope is the difference between 10-year and two-year yields. A widening US curve relative to foreign curves can ordinarily suggest relatively higher expected returns on longer-dated US debt, potentially drawing capital toward dollar assets. Kamin says the relationship had generally worked in that direction until early in President Donald Trump’s second term.

According to Kamin, the relationship changed immediately after what he calls “Liberation Day” in April 2025, when Trump announced reciprocal tariffs. A White House release dated April 2, 2025 confirms that the administration announced reciprocal tariffs that day.

Kamin says a wider US-versus-foreign two-year yield gap still coincides with a stronger dollar, which he reads as evidence of continued near-term investor confidence in Treasuries and the currency. By contrast, his estimate for the dollar’s sensitivity to the relative yield-curve slope moved below zero. Holding the two-year differential constant, a higher US 10-year yield relative to foreign long yields was associated with a lower dollar in his model.

What can the result not establish?

The analysis does not determine why long-term yields rose, Kamin says. He lists higher inflation expectations, increased Treasury issuance and concerns about federal debt sustainability as possible explanations, while adding that the results do not establish whether administration policies or longer-running developments account for the change.

Nor does the regression prove that the tariff announcement caused the shift. It identifies a change in the estimated relationship around that period. Kamin also reports that the dollar’s sensitivity to the VIX had more than halved, which he interprets as reduced evidence of the dollar serving as a haven during market volatility.

Kamin cites a Congressional Budget Office projection that federal debt could reach 175% of gross domestic product by midcentury, absent major corrective action, and argues for fiscal measures. That policy conclusion is Kamin’s own recommendation; the underlying CBO material was not included with his commentary.

This story draws on original reporting from Econbrowser.