Bond Spreads and Currencies
Bond spreads what are they? Bond spreads actually refer to the variance in the bond yields of two countries in comparison. This is the overall foundation of the previously mentioned “carry trade.”
Bond Spreads are considered to be a leading indicator of currency pair future price direction. Typically, it is considered, when a 5Y or 10Y yield spreads widen in Favor of a certain currency, that currency tends to appreciate against other peers. Nevertheless, we must remember; currency movements are affected by the shifts in Supply-Demand equilibrium, economic assessment or future plans by a Central Bank to raise or lower interest rates.
