US Treasuries and emerging-market currencies are diverging at the widest margin in over four years as higher US yields fail to strengthen the dollar as they historically have. A Bloomberg gauge of Treasuries is headed for a quarterly loss as investors sell longer-dated bonds amid concerns over the trajectory of US government debt. Meanwhile, MSCI Inc.'s benchmark for emerging-market currencies is on track for its biggest quarterly gain in more than a year.

This dynamic has pushed the correlation between the two asset classes to its most negative level since the first quarter of 2022, according to data compiled by Bloomberg. The shift suggests that traditional safe-haven flows into the dollar are weakening despite rising yields, potentially signaling a structural change in how markets price US fiscal risk versus emerging-market assets.