After months of speculation, financial markets got the headline they’ve been waiting for at the end of January as the two-plus year party for investors came to a resounding halt.To get more news about ActivTrades爱汇, you can visit wikifx.com official website.

The chief caterer — The US Federal Reserve — gave the strongest indications yet that it was time to ‘remove the punchbowl’ and tighten monetary policy. On January 11, Fed chairman Jerome Powell declared the economy was strong enough to end quantitative easing and for interest rates to “normalize”1 (read increase), sending markets into a tailspin. The Dow and the S&P 500 had their worst months since March 2020, while at the time of writing the Nasdaq was closing in on its worst month since October 2008, as equity traders absorbed the reality that the supportive environment of the last few years would be ending.

This also triggered currency market volatility, with the US dollar well and truly hitting an ascendancy. The DXY, an index of USD value against other major currencies, jumped sharply by almost 3% in two weeks on the back of the Fed’s announcement. Risk-based currencies, such as NZD and AUD, suffered losses.

After years of low interest rates and bond-buying to help economies recover from the pandemic, central banks are now moving in the opposite direction to try to prevent inflation running out of control. But how does this work, and what does the bond market, specifically government-issued bonds, tell us about currencies?

The short answer? As one of the largest globally traded financial assets, Treasury bonds and how they are priced for yield are a leading indicator of price movements in currencies. The long answer? It’s complicated.
What are bonds?
Effectively an IOU, a bond is an issuance of debt by an entity looking to borrow from investors. A bondholder will be paid a fixed amount of interest on the debt (the coupon payment) and the initial principal (the bond’s face value) is paid at the maturation date of the bond.

Bonds are issued by corporations, municipalities and governments and interest rates offered by each entity differ on the creditworthiness of the issuer. Junk bonds, for example, are bonds issued by corporations who have riskier business profiles – who will pay a higher rate of interest to reflect the risk of default.

On the other hand, Treasury bonds are issued by governments, so are seen as an extremely safe investment, particularly in times of volatility. The most creditworthy issuer is the US government, whose deep, broad and diverse economy provides plenty of tax revenue to meet its repayments.
How bonds are priced
US Treasuries are sold at auction open to everyone from private investors to global financial institutions like banks and pension funds.

On the auction date the face value of the bond is fixed, e.g. $1,000, and the auction determines the yield, or the interest rate, of the coupon payment. The duration of the debt can range from two weeks to 30 years.

After the Treasury auction, bonds can be actively traded in the secondary market until their maturity date and it’s here you get variations in the bond price.