Monday, April 5, 2010


The market is finally catching up to reality with all this new US debt to be financed. As the Obama administration runs massive deficits in excess of 1.4 trillion USD, this shortfall has to be financed. During this 2nd week of April, the US Treasury has $168 billion of notes at auction, the bidders are likely going to wish for higher yields to compensate with the excess supply. As of April 5, 2010, the 10 year US Treasury note breached 4 percent, a first in 18 months. Yields on the 10 year are likely to hit 4.5 percent in the next few months.

How will this impact USD valuation? Rising yields even with excess money creation via debt (inflationary pressures) may see a repeat of the late 1970's where high inflation and high interest rates actually resulted in a USD bull market. Our currency consulting firm has forecasted a higher USD over the last few months and this has played out correctly. Our view is for continuing USD appreciation in the months ahead as US interest rates rise.

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