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Joined Aug 2010
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Status: Capitalism Prevails
|288 Posts
our T-Bonds will go up right? And if the interest rate on our T-Bonds goes up than doesn't that translate into higher interest rates for the country and make a stronger dollar?
The trend is my friend? The world casino is my friend!
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Joined Mar 2011
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Status: The Least Expected
|110 Posts
Stronger USD? Quite contrary, it's about shocking event for treasury holders, this will eventually change their view from "safe" to "risky" asset, sure they will get shocked, and the majority of US treasury holders are foreigner, almost half of it in the hand of foreigner.
So, can we imagine when that majority holder get shocked, there will be any kind of scenario, feared investor switch all of their USD to another kind of "safer" asset, doubted investor will start to diversified their asset, etc. Whatever their reason, the effect to USD is clear, it'll be weaken because that event will generate outflow from US to another country.
Stronger USD? Quite contrary, it's about shocking event for treasury holders, this will eventually change their view from "safe" to "risky" asset, sure they will get shocked, and the majority of US treasury holders are foreigner, almost half of it in the hand of foreigner.
So, can we imagine when that majority holder get shocked, there will be any kind of scenario, feared investor switch all of their USD to another kind of "safer" asset, doubted investor will start to diversified their asset, etc. Whatever their reason, the effect to USD...
Ignored
Sorry, cant say that I agree with you here. A credit downgrade of US debt would firstly affect short term interest rates on 2s 5s and 10s. A spike in these would translate into equities and treasury sell-offs, which would translate into immediate dollar demand strength due to the fact that they would be exchanging these assets for USD. The larger question that remains is how long they want to hold those USD and what exactly are the alternatives in a down market. We do know that traders have been diversifying USD into AUD, NZD, CHF, JPY, Ag, Ag, however, given the high positive and negative correlations of those instruments to equities and treasuries, would they still continue to diversify in a full risk-off liquidation mode driven by the spike in US treasuries? IMO, I think that a spike in interest rates from both ceased QE and a credit downgrade would generate profit taking in risk trades as we are seeing over the past 2 weeks. Any type of intervention in Usd/Jpy or Usd/Chf in combination with an equities(risk)sell-off would translate into a violent dollar short covering rally. IMO, this scenario is only a matter of time, but timing is everything....
