Treasury Yields Face Curbs From Fistful of Money-Market Dollars
- Yen-based buyer can get higher return from U.S. debt than JGBs
- Large supply of dollars is keeping currency hedging costs low
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The flood of dollars that’s helping to drive some U.S. money-market rates below zero could well provide a boost to international appetite for longer-dated Treasuries and help to cap rising bond yields at the longer end of the curve.
The abundance of greenbacks in funding markets -- which is being fueled by a combination of Federal Reserve monetary policy and the prospect of government spending around the $1.9 trillion U.S. stimulus package -- has helped drag down the cost for non-dollar-based investors of hedging the currency risk on their holdings of Treasuries. That, combined with now higher nominal yields in America, means that it is looking more attractive for those investors to step in and buy.