Jump to content

US dollar steadies on firm Treasury yields despite debt ceiling risks

Recommended Posts

The USD has shored up some support as debt ceiling talks continue; Treasury yields have climbed and may underpin USD amid uncertainty and while volatilities are in check, for now, event risk might be building that could hit DXY.


BG_wall_street_NYSE_234234234.jpgSource: Bloomberg


Daniel McCarthy | Strategist, | Publication date: Wednesday 24 May 2023 

The US dollar found firmer footing going into Wednesday despite US debt talks appearing to have stalled on Tuesday.

The T-Bill market is displaying some nervousness around the so-called X-date identified by Treasury Janet Yellen to be June 1st. She has said that on that day Treasury may not be able to meet all its financial commitments.

The spread between the Bills maturing on May 30th and June 6th would normally trade within a few basis points of each other. There are currently around 400 basis points spread difference between these US Government short-term debt notes.

Conversely, broader markets don’t appear to be too concerned with volatility gauges across US equities, bonds, gold and oil remaining somewhat subdued as illustrated below. Not surprisingly, bond volatility might be slightly elevated compared to other markets but overall, currently benign compared to recent events.

Cross market volatility indices – VIX, MOVE, OVX, GVZ


original-size.webpSource: TradingView

The collapse of Silicon Valley Bank Financial (SVB) evidently caused more anxiety in financial markets as reflected by the spike in volatility at the time.

Treasury yields have been steady so far this week although they eased just slightly early Wednesday. Overall, they have recovered from the lows seen earlier this month across the curve and all tenors are now at their highest levels since the collapse of SVB.

The benchmark 2-year bond reached over 4.40% yesterday before easing after having traded at 3.66% earlier this month. Similarly, the 10-year note eclipsed 3.76% after touching 3.30% a few weeks ago.

The correlation between the DXY (USD) index and Treasury yield seems apparent in the chart below.

Looking at the chart above and below, the price movements around the SVB collapse and the growing concern surrounding the US debt ceiling appear to present patterns.

In times of crisis and uncertainty, correlations in financial markets tend to go toward 1 and -1 as the need to cover risk seems to outweigh the need to add risk.

For the US dollar, a default on US debt could be a cataclysmic event that might see inter-market correlations break down.

Historically, USD has mostly been seen as a haven in times of chaos. If the US is the centre of financial market mayhem, these relationships may come under questioning.

US dollar (DXY), US 2- and 10-year yields


original-size.webpSource: TradingView

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

Link to comment

Create an account or sign in to comment

You need to be a member in order to leave a comment

Create an account

Sign up for a new account in our community. It's easy!

Register a new account

Sign in

Already have an account? Sign in here.

Sign In Now
  • image.png

  • Posts

    • Join the BYDFi Demo Trade Profit Posting and grab your chance to share in a 10,000 USDT prize pool!  Show off your trading skills, post your profits, and let's see who comes out on top! Don't miss out on this chance to win big! 🎉
    • The #meme hype surrounding #Solana may have slowed down with the emergence of the Ton network, but it seems that the enthusiasm for Solana is not fading away entirely. While new networks like Ton are gaining attention, Solana has previously generated significant interest and wealth for investors. However, there are concerns about scammers exploiting the Solana network with various honeypot and rugpull schemes, leading some traders to explore other chains like Base and Ton. Despite the rise of Ton blockchain, a new Solana meme project associated with Pepe the Frog has started to gain traction. One such project, LandWolf, has already amassed over 5,000 active Telegram members and 5,000 Twitter followers, indicating early interest and community engagement. The project aims to unite Pepe fans with the broader crypto community, offering a unique value proposition. LandWolf's ability to secure listings on top-tier exchanges like Bitget showcases the developer's influence and the project's potential. Some enthusiasts have already dubbed $WOLF as the biggest meme coin on Solana, highlighting the ongoing interest and excitement within the Solana ecosystem.
    • Meme coins are cryptocurrencies inspired by internet jokes, like Dogecoin. They're inherently risky due to their extreme price swings. While some meme coins remain purely for fun, others are trying to develop actual uses in gaming or finance. These high-risk, high-reward investments often attract "degenerates" (or "degens") who chase quick profits by jumping into unproven projects without much research.   The potential for massive returns with meme coins can't be ignored, however. Dogecoin's 9800% surge in 2021 exemplifies this. A $100 investment could have turned into a life-changing $9800. This experience highlights the potential regret of focusing solely on "safe" investments with lower potential returns.   Taking inspiration from this, some experienced investors are now allocating a small portion of their portfolio to latest meme coins.one of the latest is Miggles listed on Bitget. This strategy allows them to potentially benefit from future bull runs while limiting their overall risk.
  • Create New...