How does the Treasury Department affect the FX Market when auctioning the High Yield Notes?
The answer to this question is quite simple. It all depends on the demand and where that demand is coming from. High Yield Notes are obviously the government bonds. The high yield means that you get a higher return than you would get in the other places. So, basically, if the treasure department is auctioning their high yield bonds the investors will, obviously, want to buy them. Simply because it will give them a good return.
When we say Tresure Department we are talking about the US Treasury. Furthermore, we are talking about American bonds. If the demand for them is coming from outside of America, let’s say foreign investors. Think China, Japan, Europe, anywhere outside of America. Those entities, those institutions are going to have to buy US dollars in order to buy those high yields in treasury. So, obviously, that can have an impact on the US dollar. In the scenario we’ve just discussed it’s would force the the value of the US dollar up.
If the demand, during these auctions, is coming from internally. For instance, from internal investors. Obviously it is not going to have the same kind of impact. There will be no currency exchange going on so the impact to the FX market will be much smaller.
The impact the high yield bond auctioning has on the FX market is quite limited. Particularly, on a day to day basis. It is very difficult to determine when this is happening and in what quantity. So in terms of trying to trade this – it is fairly tricky. But in general, that is how Fx market is affected by the Treasury Department Auctioning of those High Yield Notes.
Hope that helps and keep those questions coming!
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