Yields going up will have a strengthening effect on the USD. After so many years of easing, 2013 could be the “Year of the Dollar” as USD makes a comeback.
Brighter economic prospects, diminishing fears about a U.S. fiscal crisis and the idea that the beginning of the end is in sight for a period of ultra-easy monetary policy have sent government bond yields racing higher at the start of the year.
Indeed, faced with this backdrop, it appears that bond yields, low for so long, finally look like they are heading higher, analysts say.
A sell-off in bonds has pushed yields on 10-year Treasurys up more than 15 basis points since the start of January to about 1.87 percent. They are about half a percent above record lows hit last July when concerns about the euro zone debt crisis sent investors scurrying into safe-haven debt.
“We may see a fairly significant move in the 10-year yield and I think it could go up to as high as 3 percent in the next 12-18 months,” Mike Crofton, President and CEO at Philadelphia Trust Company told CNBC, adding that money is now starting to move out of bonds and into stocks.
The decline underscores the waning ability of official loan data to capture the scale of debt in the world’s second-largest economy as borrowers and investors turn to less-regulated, higher-return shadow-banking products. The People’s Bank of China is putting greater emphasis on aggregate financing and the International Monetary Fund says the growth of nonbank credit poses “new challenges to financial stability.”
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