Dollar Jumps to More Than 3-Month Highs, but Boost From Yields May Fade By Investing.com


© Reuters.

By Yasin Ebrahim

Investing.com – The dollar rallied Monday, riding on the coattails of surging U.S. bond yields, but rising rates could be in for a rough ride as the bond market is writing checks the Federal Reserve can’t cash as the central bank has made it clear it will not tighten policy anytime soon.

The , which measures the greenback against a trade-weighted basket of six major currencies, rose by 0.38% to 92.33, driven by a move higher in on the back of expectations for a fresh round of stimulus.

The Senate passed the $1.9 trillion stimulus plan on Sunday, and the House will vote on the bill on Tuesday, with many expecting the legislation to be signed into law by 14 March to ensure unemployment programs set to expire in mid-March don’t lapse.

The Senate package includes direct payments of $1,400 per person for families earnings less than $160,000 per year or individuals earning less than $80,000 per year.

But Treasury yields have approached overbought levels, and could face fundamental headwinds ahead.

“In ‘Top Gun,’ terms, the bond market’s ego is writing checks the FOMC’s body can’t cash […] as the bond market is pricing in Fed rate hikes well before the Fed is prepared to deliver them,” Morgan Stanley (NYSE:) said. 

In a rising rate environment, bonds today are worth less than bonds in the future, sparking a wave of selling and pressuring prices, which trade inversely to yields. But the appreciation in yields could eventually become too attractive to ignore.

“Banks in Japan sold a  tremendous amount of bonds in May and June 2013, as US Treasury 10-year yields went from 1.75 % to 2.75%, but then banks and pensions funds in Japan began to buy,” Morgan Stanley added. “History suggests investors in Japan will not abandon the US rates market forever, especially given the more attractive yields levels today.”

Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.



Source link



Leave a Reply

error: Content is protected !!