The EUR / USD fate will solve the US bond market.
When the American dollar comes to the call of the yield of treasury bonds, it is not to be surprised at its rapid strengthening against the world's main currencies against the background of the large-scale sale of $ 21 trillion market Trezris since November. According to Jefferies International, at the end of February, investors faced a scoring deficit of debt obligations from the time of cone-hysterics 2013. The need to balancing portfolios at the end of the month stabilized the market. How long?
At the end of 2020, Bloomberg experts assumed that the yield of the 10-year-old Trezeris against the background of the US economy recovery would grow from 1% to 1.5%, but few people could assume that everything would happen so quickly. When rates on debts rise, theoretically, it should not scare the owners of the shares. The rapid growth of GDP, as a rule, leads to an increase in corporate profits, which creates a passing wind for S & P 500. It seems that the rally yield Trezeris is connected not only with faith in the rapid restoration of the American economy, as trying to convince investors FOMC officials. And the rise of the volatility of the bond market indicates that the cross on the sale to put too early.
US Bond Volatility Dynamics
Source: Bloomberg.
Low demand for the latest auctions, during which the primary dealers had to redeem about 40% of the amount of emissions at the average values of the indicator two times lower recently, as well as concerns that the Fed words will ultimately disperse with the case, became the main yield drivers Trezris . Given the circumstance that the House of Representatives of 219 votes against 212 adopted the project Joe Bayden about the fiscal incentive by $ 1.9 trillion, the volume of emissions should increase even more. And if demand is low, we are expecting all new and new auctions. Investors are not satisfied with the current rates, require higher, which opens the road for a new bond yield rally.
The market scares and the fact that if the Fed will keep the leg on the brake pedals for too long, the acceleration of inflation will force her to press the gas too aggressively. The urgent market awaits raising the rates on federal funds at the beginning of 2022, which is more than a year earlier than indicated in the latest FOMC forecasts.
Thus, the answer to the question will be able to EUR / USD develop the correction in early March, should be sought in the US debt market. The releases of data on American business activity and the labor market, as well as the speeches of the Fed Commandments will split the yield. If FOMC officials continue to assert that its growth is the result of the expectations of the rapid restoration of the economy, the rates will resume rally. In order to suspend the sale of bonds and shares markets, Jerome Powell and his colleagues need to express concern that too rapid increase in profitability will tighten financial conditions.
In my opinion, the stabilization of the situation in the US debt market will allow EUR / USD to continue to consolidate in the outcome of the second decade of February of the range of 1.2-1.22. Purchases to reduce quotes to its lower border and growth in growth retain their relevance.
Dmitry Demidenko for LiteForex
Read Original Articles on: Investing.com