While U.S. debt talks appeared to stall on Tuesday, the dollar found its footing on Wednesday.

The Treasury market is showing some nervousness over the so-called X date of June 1 set by Treasury Department Janet Yellen. She has said that by that date, the Treasury may not be able to meet all of its financial commitments.

Spreads between notes maturing on May 30 and June 6 typically trade within a few basis points. The spread between these short-term US government bonds is now about 400 basis points.

Conversely, the broader market doesn't seem too concerned that volatility measures for U.S. stocks, bonds, gold, and oil remain somewhat subdued, as the chart below shows. Not surprisingly, bond volatility may be slightly elevated compared to other markets, but overall, it is currently benign compared to recent events.

The collapse of Silicon Valley Financial Bank (SVB) clearly caused more anxiety in financial markets, as evidenced by the spike in volatility at the time.

Treasury yields have held steady so far this week, although they pulled back slightly early Wednesday. Overall, they have recovered from the low of the curve earlier this month, and all maturities are now at their highest levels since the SVB collapse.

After trading at 3.66 per cent earlier this month, the benchmark two-year bond hit more than 4.40 per cent yesterday before falling back. Similarly, the 10-year note is down 3.76% after hitting 3.30% a few weeks ago.

The correlation between the DXY (dollar) index and US Treasury yields seems clear in the chart below.

Looking at the charts above and below, there seems to be a pattern to the price action surrounding the SVB collapse and the growing concerns surrounding the US debt ceiling.

In times of crisis and uncertainty, correlations in financial markets tend to be 1 and -1, as the need to avoid risk seems to outweigh the need to increase it.

A US debt default could be a catastrophic event for the dollar and correlations between markets could collapse.

Historically, the dollar has often been seen as a safe haven in times of chaos. If the United States is at the center of financial market chaos, those relationships could be called into question.