US bond yields rising strongly but the dollar isn’t following
A break in US 10 yields into 2.60%, for the first time since last March, is having no effect on the dollar. We’ve hit a high of 2.613% and sit just under the 2017 double top around 2.63%.
US 10 year yield 4hour chart
The dollar, and in particular USDJPY, isn’t budging an inch, which is highlighting the disconnect we’ve been seeing between bonds and the dollar very recently. Last week we had all that action regarding the China story on cutting US bond buys, which was later refuted but the latest US TIC data showed a drop in bond holdings for both the two big holders, China and Japan, in Nov. Bond selling has been the theme so far this year in what looks to be a big investor asset switch. With central banks (mostly) well on the road to normality (wherever that new level may be), money sitting in the safety of bonds is looking for higher risk. Could this finally be the time when the widow maker trade (bond shorts) pays off?
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NO. BE CAREFUL. BONDS WILL SOON RALLY
Any ideas why they will?
Well, one I think the stock market may get rocky. Look at the aftermarket on IBM today. GE may drop another 25% and the job market may actually go down in the short run as companies like Walmart shut 60 Sams Club stores with no warning. The Dollar also may reverse on profit taking in the international currency markets. All in all, the bond market may actually recover and rates can retest 2.20. Just my Opinion, man!
Thanks for the reply Danny, I just like to hear people’s thoughts.
You may well be right. At some point the jobs market will level off. As for stocks, it’s madness what’s going on so I think we all know how it’s going to end.
For bonds though, this does feel a little different from other sell offs. This one does seem to be a proper case of outflows that you get when a CB is in a rate hike cycle. That’s what was so missing when bonds tried selling off at other times previously.