Why this rise in US yields is so remarkable – Commerzbank

At the beginning of the year, yields were higher, and in the fall of 2023 they were even significantly higher. And at that time, no one questioned the stability of US public finances. US government bond yields and the value of the US dollar have been closely correlated to date. When US yields were high, the dollar was typically strong, and when US yields were low, the dollar was weak. That is no longer the case. That is why this rise in US yields is different from previous ones, Commerzbank's Head of FX and Commodity Research Ulrich Leuchtmann notes.

Rise in US yields is different from previous ones

"What is different? In principle, yields can rise for various reasons. US yields can rise because the earnings outlook in the US is improving. If, for example, US companies are expected to make high profits, the government has to pay higher yields to ensure that investors continue to provide it with capital. In this case, the US dollar will also appreciate because, in addition to its purchasing power for consumer goods and services, it is also a ticket to such high-yield investments."

"However, T-note yields may also rise because investors demand a higher risk premium before investing their money in the US. Yield increases of this kind are not accompanied by a strong US dollar. On the contrary, in such a scenario, the US dollar tends to depreciate because FX investors typically demand a higher risk premium, too."

"We are dealing with the second type of yield increase. Of course, it could also be something completely different. However, until someone comes up with a plausible alternative explanation, this is the most likely explanation. That is why everyone is so excited about it – despite the moderate extent so far."