We expect bond yield divergence to favour the USD

We expect higher government bond yields in the US than in other developed markets (DMs) to push the US dollar up, as has generally been the case since the Global Financial Crisis.
Jonathan Petersen Markets Economist
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Global Markets Outlook

We don’t expect the rally in bond markets to continue

While long-dated government bond yields have plummeted in recent months, we suspect that high inflation and the prospect of tighter monetary policy will see them turn a corner before long. We forecast long-term yields to rise across most major economies, especially in the US, where inflationary pressures look particularly strong. Higher yields may also help limit the upside for risky assets, such as equities and corporate bonds. Their valuations already appear fairly stretched in many cases. And when it comes to equities, an extremely strong rebound in corporate earnings already appears to be discounted. As a result, we forecast only small gains in equities across both DMs and EMs, and expect credit spreads to narrow only a little, if at all, from here.

30 July 2021

Global Markets Update

We doubt global saving will stop US yields from rising

In the early 2000s, a ‘glut’ of global saving may have helped restrain rises in long-term US bond yields, even as investors began to discount tighter monetary policy. We don’t think that similar factors explain the latest fall in yields, nor do we expect them to prevent yields from rising over the next couple of years.

28 July 2021

Global Markets Update

We expect E-Z “peripheral” spreads to remain low

While we no longer expect peripheral spreads to narrow this year, we still think that they will remain close to their current levels, which are close to the lowest since the Global Financial Crisis.

23 July 2021

More from Jonathan Petersen

Capital Daily

Making sense of the mixed signals behind US dollar strength

The US dollar has strengthened against most currencies, despite the fall in the yield of 10-year US Treasuries. We think that the greenback will appreciate further, aided by a rise in long-term Treasury yields.

1 July 2021

FX Markets Weekly Wrap

US ISM and payrolls could add fuel to the dollar rally

The US dollar seems set to end the week slightly weaker, but has held much of its gains following last Wednesday’s FOMC announcement. With increasing focus on the prospects for monetary tightening globally, next week’s employment and survey data in the US may push the dollar higher, if they back up the Fed’s optimistic assessment of the economic outlook.

25 June 2021

FX Markets Update

We think that the yen will weaken further before long

We expect the yen will continue to depreciate against the US dollar this year as 10-year US Treasury yields resume their rise.

18 June 2021
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