What Happens to Currencies
If the 10 Year Bond Goes to 6%? - Forex Market
Friday, 03
June 2005 GMT - Source FXCM
With Total US consumer credit approaching
at 2 Trillion dollars and US mortgage debt exceeding
4 Trillion dollars, many analysts are concerned about
the impact of rising rates on the growth of US economy.
Most troubling of all is the fact that US interest rates
are near record lows, so even a small increase in rates
could have a large impact on the cost of debt service.
(A 1% hike on a 10% loan only increases costs by approximately
1/10th whereas 1% jump on a 2% loan increases costs
by fully one half).
In the past two years, a rise in bonds yields, categorized
by sharp declines in bond prices presaged large declines
in the USD with uncanny accuracy. If 10 Year bond yields
rise to 6% the effect in the USD is likely to be negative
as trader's concerns about US economic growth will resurface.
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