U.S. Treasury yields decline are only temporary — The future path of the foreign exchange market 139th edition (updated 2021.07.12)

In Japan's only FX specialty magazine “FX攻略.com,” which had a popular series exceeding 130 installments, “The Future Direction of the Foreign Exchange Market,” we will continue to have economist Tomotaro Tajima explain how the continuously moving market is expected to move in the future, just as before, now also online.

Tomotaro Tajima Profile

Tomotaro Tajima. Economic analyst. President and CEO of Alfinants. Born in Tokyo in 1964. After graduating from Keio University, he shifted from Mitsubishi UFJ Securities, where he worked, to his current path. He analyzes and studies a wide range from finance and economy in general to strategic corporate management, and even individual asset formation and fund management. He serves as a lecturer at lectures, seminars, and training programs hosted by private companies, financial institutions, newspapers, local governments, and various business associations, with approximately 150 lectures annually. He has written and commented extensively for print media, including Weekly Gendai “Code of Net Trading” and Examina “Money Maestro Training Course.” He also writes stock and forex columns on numerous websites and is highly regarded as a stock and FX strategist. He has also written for the Home Economy section of the Jiyu Kokuminsha’s “Basic Knowledge of Contemporary Terms.” He has regular appearances on television (TV Asahi “Yaji Uma Plus,” BS Asahi “Sunday Online”) and radio (MBS “The Sharp One’s Morning Market Newscast”), and currently serves as a regular commentator for Nikkei CNBC “Market Wrap” and Daiwa Securities Information TV “Econo Marche,” among others. His main DVDs include “Very Easy to Understand: Tajima Tomotaro’s FX Intro” and “Very Easy to Understand: Tajima Tomotaro’s FX Practical Technical Analysis.” His major books include “Wealth Review Manual” (Paru Publishing), “FX Chart: The Formula for Profit” (Alchemix), and “Why Can FX Make You Asset Rich?” (Text) among many others. His latest publication is “How to Profit by Riding the Rising US Economy” (Liberty People).

The Current Decline in US Treasury Yields Is Merely Transitory

Last week on the 8th, as the US 10-year yield briefly fell to the 1.24% range, the market was unsettled for a time. Some attributed this to concerns about the global spread of the Delta variant, suggesting the economic outlook had become more precarious; however, it would be prudent not to swallow such views wholesale.

A larger cause is likely that those hedging with US Treasury futures and similar instruments in anticipation of a re-upward move in US rates simultaneously dumped their positions. Thinking back, after the June FOMC, some expected the US 10-year yield would rebound soon after a brief drop. Yet it did not rise quickly, prompting many to buy back US Treasuries out of impatience. In short, the current decline in the US 10-year yield should be viewed as temporary.

Will Risk-On Mood Spread Again?

Of course, the temporary risk-off mood in the market is also expected to retreat soon. In fact, on the 9th of last week, the Nikkei Stock Average fell nearly 700 points intraday from the previous day, but ultimately closed down 177 points. Moreover, the Dow Jones Industrial Average on the same day reached an all-time high on a closing basis. Furthermore—