Forex News

The bond buying spree keeps the dollar soft

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US 10-year yields are down 16.7 bps on the day at 4.06%, a session low.

You would think that the bid in bonds would ease with stocks soaring but there has been no let-up. In turn, the US dollar is also sitting close to the lows, though I’ll be keeping a close eye out for something of a reversal after the London close.

Yesterday, I was wondering if there was some kind of unwind in a short-gilts, long-Treasuries trade because the moves weren’t adding up. Today the bid in bonds might reflect some kind of normalization.

At the same time, you hvae to go back a long way to get +4% in Treasuries so today’s moves could simply reflect fundamental flows. Moreover, we’re starting to see weakness in US data and there could be safe-haven flows as confidence grows that inflation has peaked and that pension fund selling of bonds is over.

What does it mean for the dollar?

Lower yields are negative for the dollar and it’s a crowded trade. The spot I’ll be watching closely is the euro. It’s been a one-way trade all year but gas and power prices in Europe are currently doing much better than feared. There’s room for a relief rally here and the downtrend has broken today.


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