Bond yields hit new highs: what it means for the dollar
US 10YR Treasury yields have rallied to hit highs last seen in 2007. US dollar has also strengthened to extremes. Find out how often these assets are positively correlated and what it means for forex pairs.
Key points
- US 10-year Treasury yields are back through highs last seen in 2007
- 10YR yields and USD have historically been positively correlated - currently around +0.50
- 83% of IG clients in USD/JPY hold short positions
Are Treasury yields and US dollar correlated?
Historically, US dollar and bond yields are positively correlated. Over the past year, the correlation between 10-year Treasury yield and US dollar (UUP dollar ETF) has been exclusively positive - currently around +0.50. This relationship exists primarily because of their shared reliance on interest rates. A high interest rate environment can drive yields for assets like the 10YR higher and cause increased demand for USD as well.
This week, the yield for the 10YR surpassed 4.9% for the first time since 2007. Similar US dollar strength can be seen most prevalently in USD/JPY, which is trading near a 30-year high of 150.00. IG traders are anticipating a mean reversion with 83% of clients in USD/JPY holding short positions.
10YR correlation with USD
How to trade US dollar
- Open an account to get started, or practice on a demo account
- Choose your forex trading platform
- Open, monitor, and close positions on USD pairs
Trading forex requires an account with a forex provider like IG. USD pairs can be found in IG's platform under the 'USD Pairs' pairs tab. Many traders also watch major forex pairs like GBP/USD and USD/JPY for potential opportunities based on economic events such as inflation releases or interest rate decisions. Economic events can produce more volatility for forex pairs, which can mean greater potential profits and losses as risks can increase at these times.
You can help develop your forex trading strategies using resources like IG’s Trading Academy. Once your strategy is developed, you can follow the above steps to opening an account and getting started trading forex.
Your profit or loss is calculated according to your full position size. Leverage will magnify both your profits and losses. It’s important to manage your risks carefully as losses can exceed your deposit. Ensure you understand the risks and benefits associated with trading leveraged products before you start trading with them. Trade using money you’re comfortable losing.
Why do interest rates matter to forex traders?
Interest rates impact forex markets because they determine the cost to hold or borrow currencies overnight. The differential between interest rates can cause greater demand for a certain currency over the other.
This information has been prepared by IG, a trading name of IG US LLC. This material does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. You should not treat any opinion expressed in this material as a specific inducement to make any investment or follow any strategy, but only as an expression of opinion. This material does not consider your investment objectives, financial situation or needs and is not intended as recommendations appropriate for you. No representation or warranty is given as to the accuracy or completeness of the above information. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. See our Summary Conflicts Policy, available on our website.
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