NEW YORK: Surging US real yields are aiding the dollar’s rebound, rewarding bullish investors while making bears think twice before betting against the buck.
The real yield on US 10-year Treasuries — which measure how much investors stand to make on US government bonds after inflation is stripped out — hit 2.47 percent on Tuesday, the highest in nearly 15 years, according to data from the US Treasury Department.
That has made betting on the US currency more profitable, since bullish investors can collect yield while sitting on their dollar positions.
The dollar is up 7 percent from its 2023 lows against a basket of currencies and stands at a 10-month high.
At the same time, climbing real yields make it more expensive to bet against the dollar. Bearish investors establishing short positions must pay more to borrow the currency.
Dollar positioning in futures markets showed a net long of $3.07 billion for the week ended Sept. 26, according to data from the Commodity Futures Trading Commission. That was a sharp reversal from a short position of $21.28 billion earlier this year.
“The dollar isn’t just the nicest house in a bad neighborhood right now, it’s the only game in town,” said Karl Schamotta, chief market strategist at Corpay in Toronto. With real yields pushing higher, “only the bravest of traders are willing to bet against the greenback,” he said.
The Federal Reserve’s resolve to keep rates higher for longer along with relatively strong US economic growth has helped push nominal yields to their highest level since 2007. That, combined with a deceleration in inflation, has sent real yields soaring.
Their surge has coalesced with other factors to fuel the dollar’s rebound. The greenback is up 3 percent against a basket of currencies this year.
Other factors include a resilient economy that has made the US a relatively more attractive investment, with growth steadier than floundering Europe and China.
