The stocks across the world are demonstrating strong performance, but the US Treasury yields fell recently, putting the US dollar under pressure.
Under the economic pressure due to the global coronavirus pandemic, the financial markets are facing concerns and reacting to the lingering uncertainties. While the stock markets are positive, the dollar index closed at its three-month low and lowest since April 2018, last week.
The performance of the US Treasury bonds works on a demand and supply basis. When investors look for safe havens during times of economic uncertainty, the demand of the US Treasury bills shoots up, taking the yields lower. The same is happening in the current scenario when investors are concerned about the growing coronavirus cases, associated lockdowns, and their impact on the global economy.
While some people are looking at ETFs for diversification, more and more people are turning to the US Treasury bills and, therefore, the benchmark 10-year Treasury yields fell from 0.878% to 0.8422%. The yields are slightly above the 200-day moving average. The gap between the 2-year and 10-year bills also widened by 71 basis points, the highest since June 2020.
It is interesting to note that among the uneasiness, the performance of the major stock indices rose. The Dow Jones Industrial Average reported a rise of 0.13% or 37.9 points, the Nasdaq Composite increased by 0.92% to 12,205.85, and the S&P 500 gained 0.24% or 8.7 points. The European stocks also registered an upward trend influenced by the expectations of another financial stimulus in December 2020 and an increase in the quantitative easing by Riksbank. Japan’s index, Nikkei, grew by 0.40%, and emerging markets stocks went up by 0.12%.
The movements in stock indices and Treasury yields showed their apparent effect on the dollar. The dollar index came under pressure with the fall in Treasury yields and fell by 0.269%. The currency movements, or the dollar index, in this case, are closely related to the bond yields. The differentials of bond yields move in tandem with the currency pairs. As the US Treasury bonds yields decrease, it becomes expensive to own the dollar, and it comes under negative pressure. According to analysts, the dollar is following the expected downward trend and will dip down further in the near future.
Therefore, in response to the growing unsureness of the global economic scenario, the US elections, and talks around the COVID-19 vaccines, investors are being more cautious. The move towards safe Treasury bills reduced their yields, making the dollar weaker. On the other hand, the euro reported an increase of 0.39% to $1.196, and the Japanese Yen became stronger by 0.24% compared to the US dollar.
The US crude oil fell by 0.42%, and Brent went up by 0.98% in the same duration. The spot price of gold dropped 1.3% to $1,787.40 per ounce, the silver price fell by 3.20% to $22.70, and Bitcoin also reported a decline of 2.25%.