Let’s Upgrade Our Knowledge: Bond Yield and FX market; April 21, 2022
Let’s Upgrade Our Knowledge: Bond Yield and FX market
Many time we read in an article that FX volatility was due to rising Treasury yield, right? So let’s fix it out how we can correlate this theory in our practical trading strategy.
First of all let’s start with understanding of the simple Terminology of the following words:
Bond – It is a debt security issued by a government to support government spending and obligations.
Bond yield – When an investor purchases a bond from a company/Government, he gets paid at a specified rate of return, also known as the bond yield.
In simple terms, Bond yield refers to the rate of return or interest paid to the bondholder while the bond price is the amount of money the bondholder pays for the bond.
Now, bond prices and bond yields are inversely correlated. When bond prices rise, bond yields fall and vice-versa.
In other terms, if interest rate rises then yield rises and if interest rate falls then yield falls.
Now let’s jump on to the FX market:
Do you know that Bond yields act as an outstanding indicator of the strength of a nation’s stock market and indirectly increases the demand for the nation’s Currency?
For an example, demand for bonds usually increases when investors are concerned about the safety of investments and it makes the prices on bond higher and yield lower. This whole journey from stocks to safe haven bonds makes the U.S. dollar stronger.
In short, a rising yield makes dollar bullish and falling yield make dollar bearish.
Let’s keep practice to watch U.S. Treasury Yield chart too to predict the further directions of the U.S. dollar to take the best advantage of the FX market.
We @ TP Global FX always help you to upgrade your knowledge to take the maximum benefits of the FX market with minimizing your risk with your own awareness on FX markets.
Take a look and do trade wisely!