Interest Rate Roundup

Thursday, December 11, 2008

Dollar getting pasted; Latest on bonds

Of all the markets out there I'm watching, the currency market deserves a special mention today. The Dollar Index (DXY) is getting pasted to the tune of 160 basis points. That's a big move for the DXY, which is currently trading at 83.89. What's particularly noteworthy is that the dollar is losing against almost everything. Usually "risk-averse" currencies like the yen fall against the buck when currencies like the Euro and Pound rise. But today, the yen is up, the euro is up, the pound is up, and the commodity dollars (Aussie, New Zealand, Canada) are up. Heck, even the Indian rupee, the Brazilian real, and other emerging market currencies are rallying.

Will this impact bond prices at some point? One wonders. Foreign investors owned $2.86 trillion, or 53.6%, of the $5.34 trillion in outstanding, marketable Treasuries as of September (Data available here).

UPDATE: The DXY is now down 200 bps. This is a big move. Meanwhile, long bond futures are at the day's low -- down 26/32 in price.

UPDATE2: Indirect bidding was weak at the government's sale of $16 billion in 10-year Treasury Notes. That category of buyers (which includes foreign central banks) snapped up just 12.7% of the deal, the least since 5.8% in March 2008. However, the notes sold at a lower yield than forecast (2.67%) and the bid-to-cover ratio was strong at 2.44 (the highest since September). Bonds have rallied off their lows on this news, with the futures recently up 9/32 in price.


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