“The prospect of U.S. rate hikes and a shrinking trade deficit support a stronger dollar—but we brace ourselves for temporary reversals,” according to BlackRock. “We see the U.S. Federal reserve (Fed) ending its rate rises at a lower level than in recent decades.”
Moreover, the analysts argue that the global hunger for yield should cap spikes in 10-year Treasury yields. For instance, the iShares 7-10 Year Treasury Bond ETF (NYSEArca: IEF), which has a 7.76 year duration, comes with a 1.98% 30-day SEC yield while the yields on benchmark 10-year Treasuries are at 2.22%. In comparison, 10-year Japanese Government Bond yields are at 0.41% and 10-year German bund yields are at 0.68%. [Institutional Use of ETFs Continues Rising, Says BlackRock]
U.S. Treasuries remain an attractive for their yields and for their relative safety. Consequently, more overseas investors may turn to U.S. Treasuries, which will further support U.S. dollar demand, for the higher yields. [Overseas Capital Flight Could Maintain Dollar ETF Strength]
For more information on the greenback, visit our U.S. dollar category.
Max Chen contributed to this article.