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Treasury Yields Analysis – October-10-2023

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Market News – This article will focus on Yields Analysis as the financial world is currently focused on the decreasing yields, which are providing a breather to the overvalued dollar and creating some space for equities to breathe. It’s somewhat unexpected that the rush towards safer investments was minimal, and it was the Swiss franc that caught most of the attention. This could be due to the fact that we’re only four days into the new war.

If the concept of yields seems unfamiliar to you, we highly recommend reading this enlightening article on ‘What are Yields‘.

What might be worth noting is the significant increase in the value of the Australian dollar, which is rich in energy natural resources and is geographically distant from both war zones.

AUDUSD Daily Chart

Treasury Yields Analysis - October-10-2023

Yields Analysis

Yields Analysis: Federal Reserve’s Stance

Bloomberg has reported that Philip Jefferson and Lorie Logan from the Federal Reserve have both agreed that the tighter conditions resulting from the increase in Treasury yields could potentially replace further rate hikes. While this could be true in Yields analysis, it might not be particularly helpful as it could undermine the perceived determination of the Federal Reserve. We can expect more insights from other Federal Reserve speakers today.

The IMF has released a series of new predictions indicating that growth will be slower in Europe and China. Inflation remains stubbornly high and is not decreasing as much as anticipated.

Yields Analysis and the US Inflation

The US inflation is going to be in the spotlight. The current prediction is for the Consumer Price Index (CPI) to increase by 0.3% month-on-month, down from 0.6% in August, and 3.6% year-on-year, down from 3.7% in August. The core is expected to remain at 0.3% month-on-month, the same as August but fall to 4.1% year-on-year from 4.3%. Other forecasts include Bloomberg with 3.74%, higher than August, and the Cleveland Fed with 3.69%.

Market Forecast

The dollar appreciated with the rise in yield and is now depreciating with the yield retreat. It’s likely that the yield retreat is genuine, and it was the sudden rise to nearly 5% that was disruptive. Why did yields rise so quickly? Many managers had invested in the entire yield curve back in 2021-22 and didn’t exit in time. Some banks are still holding long tenors from then. They misjudged the Yield Analysis and stuck to their positions even as global conditions were changing. This can be attributed to obstinate economists as well. We are now entering a period of more rational and reasonable movements. We will still likely reach 5%, but not this week or next.

The dollar continues to have strong support due to a robust economy, its status as a safe haven, and a determined Federal Reserve. However, these yields are a significant obstacle, and we should probably anticipate further retreat of the dollar.

  • 10 October 2023
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