Increasing U.S. Bond Yields - Long Term Economic Growth or Funding Crisis? - Rising U.S. bond yields has been the key story driving the USD higher the last couple of days. Ten-year Treasury yields have risen by 25 bps, a six-month high, in response to the Obama/Republican deal to extend a series of tax cuts. Now, have yields increased because the deal points to long term growth in the U.S., which would be good, or do rising yields point to a funding crisis in the U.S., which would be devastating for the USD. The answer to this question will be found in future U.S. bond auctions. The media will have you believe that the rising yields was the work of the bond vigilantes - what a joke that is, where have they been for the last 10 years? If they were on the job, they would have forced government to restrain fiscal policies and we wouldn't be in this mess right now. Bond vigilantes, give me a break, we currency traders have been doing your work for the last 10 years. Back to the markets, the continued rise in bond yields is supporting the USD while the Euro remains on its back foot after ratings agency Fitch downgraded Ireland's sovereign debt. Fitch cut its rating on Ireland to BBB+ to reflect the additional costs of restructuring Ireland's ailing economy and banking sector. In Asia, the combination of Australian jobs growth and an improving economy in Japan help to boost all Asia currencies. Japan’s GDP grew at an annualized 4.5% pace in the last quarter, faster than the 3.9% previously reported, and Australian employers added 54,600 jobs in November, more than double the median 20,000 increase that was forecast. In Canada, the CAD was little changed versus the USD as commodity prices firmed and equity future pointed to a rebound in equities.
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