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ATFX Review: U.S. short-term bond interest rates rise, long-term bond interest rates fall, the U.S. index may rise above 94


ATFX Review: The 10-year U.S. Treasury bond yield has stability and continuity, so it is often used as an indicator to analyze the direction of the U.S. interest rate market. However, the recent 10-year U.S. Treasury yields and short-term U.S. Treasury yield trends have deviated, with long-term bond interest rates rising and short-term bond interest rates falling. This means that the Treasury bond market believes that the US economy will experience a strong recovery in the past one or two years, but the economy will fall into recession again in the next five to ten years. The point in time when this change occurred was the Fed’s interest rate rate last week, when Powell talked several times about reducing the size of national debt and raising interest rates.

Figure 1. One-year U.S. Treasury Yield-ATFX

It can be seen that before last week, the US short-term debt has been in a downward trend; after the Fed’s interest rate decision, the significant long-term yang line broke through the previous multi-week K-line high. The recent rise in the US dollar index is largely due to the rise in short-term US bond interest rates. The one-year U.S. Treasury’s “low creeping” began on March 23, 2020. During this time, the United States was cutting interest rates on a large scale in response to the new crown pneumonia epidemic. Up to now, the “low creeping” time has been maintained for 15 months, which is rare. Even if the Fed does not take measures to reduce the size of monthly bond purchases in the second half of the year, market expectations will continue to heat up, which is completely sufficient for the rise in short-term U.S. interest rates. The risk is that the Fed’s decision logic is to “cut interest rates if nothing is resolved”. If there is a black swan incident in the second half of the year, the expectation of reducing the size of bond purchases will no longer exist, and both U.S. Treasury interest rates and the U.S. dollar index will plummet.

Figure 2. Ten-year U.S. Treasury Yield-ATFX

Long-term U.S. bond interest rates have performed poorly. Even when expectations of reducing the size of bond purchases were strongest last week, they only closed the inverted hammer K-line with a long upper shadow. Part of the reason is that the Fed’s monthly debt purchases are mainly long-term bonds, and ten-year U.S. bonds are one of them. The 80 billion monthly bond purchases have pushed up the price of U.S. Treasury bonds and will correspondingly lower U.S. bond interest rates. From this perspective, U.S. bond yields are not entirely determined by the market, and there are certain regulatory attributes. The Fed does not want U.S. interest rates to rise quickly without a strong economic recovery, because this will have a negative impact on the business economy. Figure 3, US dollar index weekly chart-ATFX The dollar index has successfully bottomed, and the support point is at the previous low of 89.18. As can be seen in the figure, the previous high of 93.41 has become the resistance level for this round of rising. Only when this price is effectively broken can the future upside space be fully opened. The channel line in the chart shows that the upper rail suppressed this week’s rise. There is the announcement of the PCE price index in the first quarter of the US on Thursday. If not surprisingly, the published value will be 2.5% higher than the previous value, which will give a certain boost to the US dollar index bulls. In addition, during the first four days of this week, senior Fed officials will make speeches every day. Traders need to pay close attention to their views on labor market and price changes. ATFX Disclaimer : 1, The above analysis only represents the views of analysts. The foreign exchange market is risky and investment needs to be cautious. 2. A TFX will not be responsible for any profit or loss that may be caused by the direct or indirect use or reliance on this information. Source: Financial World Network