How Fixed Income Securities Affect Currency Movements

Let's take a quick review: we have so far, explained how differences in rates of return can function like an indicator of currency price fluctuations. When the bond spread or interest amount which is peculiar in between two economies rises, the currency with the higher bond yield at all the time rises against the other.

Fixed income securities (including bonds) is mentioned to those types of investment security that pay investors fixed interest or dividend payments until its maturity date.

Note: Any Economies that provides higher returns on their fixed income securities should attract more investments.

In addition to that, This would then make their local currency more captivating than those of other economies which is producing different services with lower returns on their fixed income market. For example, when talking about U.K. bonds and European securities lets take gilts and Euribors

When Euribors decides to provide a lower percentage of return compared to gilts, investors would be disheartened from putting their money in the eurozones fixed income market and would rather place their money in higher-yielding property. For that reason, the EUR could loosen in opposition to other currencies or money, especially the GBP. This situation can be described to nearly all the fixed income market and for each of the currency.

You can compare yields on the fixed income securities of Brazil to the fixed income market of Russia and use the differentials to forecast the nature of the real and the ruble. Similarly, you can view the fixed income yields of Irish securities in comparison to those in Korea… Well, you get the picture.

When you feel like giving your hand trial at these relationship, data on government and corporate bonds can be found on these two websites:

• Bloomberg

• Trading Economics

Alternatively can look into the government website of a particular country to find out the current bond yields. Those are usually pretty accurate. They are the government. As a matter of fact, one can say most countries provide bonds but you can choose to have interest to stick to those whose currencies are part of the majors. Below are some of the commonly bonds from around the world and their nice nicknames:

Moreover, there are Some countries that are providing

bonds with different terms to maturity so just ensure you are comparing bonds with the same term to maturity (like 5-year gilts to 5-year Euribors), or else, your analysis would be away.

And what would we want to do in order to prevent that since we wouldnt like that to happen？