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Bonds and how they influence Forex.

Discussion in 'General Forex Talk' started by Pipmaster, Oct 8, 2007.

  1. Pipmaster

    Pipmaster Recruit

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    I have a vague undertanding of Bonds. I know their yields are a good indicator of investor sentiment and as a result are a powerful tool of reference for traders. However I remain hazy in my understanding of what influences Bond prices and yields, and in turn how Bond prices and yields affect the the Forex market. Are there any experienced traders that can give a good explanation?

    Am I right in saying that yields drop and prices rise when risk aversion is high and (safer) Treasuries are in higher demand and vice versa?

    Any help would be greatly appreciated.
     
    #1 Pipmaster, Oct 8, 2007
    Last edited: Oct 8, 2007
  2. Pipmaster

    Pipmaster Recruit

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    Since starting this thread I have found out what I wanted to know. Bond prices are affected by demand. When investors take their money out of riskier assets in times of panic, treasuries thrive as investors seek the safety of government debt. This in turn pushes bond prices higher and their yields lower (due to demand). The US 10 year note is viewed as the safehaven of investments; monitoring it, is a great way to understand investor sentiment.

    Rising Bond prices = risk aversion, equities down carry trade sell off

    Falling Bond prices = equities up and carry trade rally
     
  3. forecastingpips

    forecastingpips Recruit

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    Bonds

    Mr Pipmaster,

    You are correct. At their current level, they may put pressure on the feds to cut rates this month.
     

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