Dollar May Get Treasuries Lifeline, But Only If Yields Crack 3%

Dollar May Get Treasuries Lifeline, But Only If Yields Crack 3%

The 10-year Treasury yield needs to crack at least 3 percent before interest rates provide “meaningful” support for the dollar, according to Eurizon SLJ Capital Chief Executive Officer Stephen Jen.

While the Treasury benchmark has climbed about 30 basis points this month and touched levels unseen since 2014, beleaguered dollar bulls have seen the U.S. currency extend its slump from last year. The greenback’s advance on Monday in concert with Treasury yields provided a glimmer of hope for those betting on dollar gains that bonds might finally be having a greater impact.

Hedge fund boss Jen says rising yields are likely to buoy the dollar sometime this year, but he’s not convinced the market has reached a “boiling point” just yet.

“The interest rate profile in the U.S. is drifting higher, but I don’t know if it’s high enough to support the dollar at this stage,” said Jen, a former economist at the International Monetary Fund, World Bank and Federal Reserve. “2.7 percent is not that high in absolute terms, but if we see 3 percent in the U.S., it would be quite interesting.”

A rise in inflation could be the trigger for Treasury yields to keep rising, according to London-based Jen. Though inflation has run well below the Federal Reserve’s 2 percent target, he expects price pressure to build in the second half of 2018 and boost U.S. rates.

The 10-year yield was at 2.71 percent as of 1 p.m. in New York, having reached as high as 2.73 percent earlier in the day. That’s above the 61 basis point range that the rate traded in last year, which was the narrowest for any year since 1965. The Bloomberg dollar index has fallen almost 10 percent over the past year.

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