US: Real yields declining – AmpGFX

Greg Gibbs, analyst at Amplifying Global FX Capital, suggests that the currency markets are getting influenced by the decline in real 10-year yields in the USA, as inferred by inflation-linked bonds.

Key Quotes

“US real yields peaked in November last year at 1.16%, falling to 0.74%, a low since August last year.  This has led a fall in a number of other countries’ real yields, including Australia and Canada. However, yields in the USA have fallen somewhat further in recent weeks, whereas they have stabilised in other countries.”

“Lower US yields suggest that confidence in the US economy has faded, and the outlook for Fed policy is towards easing.”

“10-year real-yield spreads have been more correlated with exchange rates than short or long term nominal yield spreads over the last year.  The recent fall in USA real yields points to downside risk for the USD.”