Investorideas.com

Call 800 665 0411 to learn about our services for your stock

Search   Follow Investorideas on Twitter   Investorideas is on Facebook   Investorideas is on Youtube   Investorideas is on Pinterest  Investorideas is on stocktwits   Investorideas is on tumblr   Investorideas is on LinkedIn   Investorideas Instagram   Investorideas Telegram   Investorideas Gettr   Investorideas RSS




Share on StockTwits

Bond yield spreads support the dollar despite the decline in real yields

Today's Market analysis on behalf of Samer Hasn Market Analyst and part of the Research Team at XS.com

 

December 8, 2023 (Investorideas.com Newswire) US dollar has been able to recover significantly since late last November against a number of major currencies. These rises came despite the continued flow of data indicating that inflation continues to ease and return to its normal path.

Consumer Price Index (CPI) inflated by 3.24% last October on an annual basis, which is slightly close to the lowest levels since the first half of 2021. Inflation also continued to decline at the level of the core Personal Consumption Expenditures Price Index (core PCE), the preferred by the Fed, to 3.46%, which is the lowest level we have not seen since April of last year.

The various inflation readings and expectations helped strengthen the markets' expectations that the Fed is actually done hiking interest rate and move towards cutting it sometime next year. These expectations pushed bond yields to record their lowest levels in months. The yield on ten-year Treasury bonds fell to less than 4.2%, the lowest level in three months.

Inflation-adjusted bond yields declined sharply last November as nominal yields fell. The real yield on ten-year Treasury bonds is at 0.974%, which is slightly close to the lowest levels since mid-October.

Despite the lackluster performance of bond yields, whether nominal or real, we still see a further widening of the yield gap between them and their corresponding Eurozone and British bonds, especially since the last week of last November.

Look at the following chart, which displays the yield gap between ten-year US Treasury bonds and their corresponding bonds of some Eurozone and British countries, in addition to the inflation-adjusted yield on ten-year Treasury bonds and the performance of the Dollar Index:

Source: TradingView

The widening yield gap appears to reflect some aspect of the future path of interest rates on both sides of the Atlantic. On the one hand, the US appears set to soft-land inflation and avoid recession despite record interest rate levels, with a strong banking system and corporate profitability but some weakness in the labor market.

On the other hand, various economic activities in the Eurozone are still recording further contraction, albeit at a continuing slow pace. However, the contraction is still continuing and the restoration of growth does not appear to be close, despite the continued decline in investor and individual pessimism over the past three months.

The situation is almost the same in Britain, but with more positive signs in the services sector, in contrast to the continued fragility of the housing market, represented by weak demand and the continuing decline in construction activities.

The previous weaknesses, if they persist and worsen, may prompt monetary policy makers in both economies to reconsider holding on to high interest rates and moving towards lowering them in the near future.

This disparity in trends across economies may keep investors more attracted to US bonds. This was actually demonstrated by more massive flows into bond ETFs last month and throughout the second half of this year.

More Info:


Investorideas.com Newswire

This news is published on the Investorideas.com Newswire - a global digital news source for investors and business leaders


Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investing involves risk and possible losses. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. Contact management and IR of each company directly regarding specific questions.

More disclaimer info: https://www.investorideas.com/About/Disclaimer.asp Learn more about publishing your news release and our other news services on the Investorideas.com newswire https://www.investorideas.com/News-Upload/

Global investors must adhere to regulations of each country. Please read Investorideas.com privacy policy: https://www.investorideas.com/About/Private_Policy.asp


That's all it takes to get an article published on Investor Ideas - Learn More