Fundamental analytics

A Word On Treasury Yields

I get it. It’s midweek and you are feeling exhausted already. But hold on for a minute before jumping into a cup of Chardonnay, check this out: the yield of the benchmark 10-year Treasury note reached 3 percent in the previous session, a level not seen since January 2014.

Gary Pollack, head of fixed-income trading at Deutsche Bank Private Wealth Management, said the 3 percent rate is seen a psychological level for investors.

A major bond player went a step further Monday, reassuring a break above 3 percent might open the doors to an upward extension as traders’ confidence is likely to be boosted by news.

I see… you have no clue of how that actually impacts your Forex trading portfolio. Don’t worry, you are not alone. In fact, many traders operate without knowing what’s the role of Treasury bond yields and how it relates to their prefered currency pairs. So let’s figure that out together:

Treasury bond yields are closely monitored by market players for multiple reasons. The rates on the bonds are paid by the US government for borrowing money, a similar idea of an interest.

So… Why is the 10-year treasury yield relevant?

The importance of the 10-year treasury bond yield relies on its use, rather than on its value. This yield is used as a barometer for mortgage rates and other financial instruments.

Bond yields have been rising since the beginning of 2018, but the analysis of such move presented two very different interpretations. For some market participants, the increase in yields outlines a higher confidence in the economy and the current administration.

However, others believe the rise in yields is a merely reaction to Federal Reserve’s plan to continue with monetary policy adjustments, especially interest rate hikes. This group also warns about negative effects of higher borrowing costs in the country.

  • US bonds are sold at auction by the US government

  • Bonds are instruments used by governments to finance themselves

Dynamics:

  • 10-year US Treasury yields go up when investors’ confidence rises

  • 10-year US Treasury yields go down when investors’ confidence drops

  • 10-year US Treasury yields go up when safe-haven assets demand increases

  • 10-year US Treasury yields go down when safe-haven assets demand decreases

New articles