You’ve got the papers screaming “dollar crisis!” on the one hand but bond investors are clearly sanguine on the other. It is hard to rectify the two opposing view points though one can conclude that the dollar slide is more speculative than flow-driven as the US continues to find buyers for its paper, at seemingly ever-lower yields. This is in direct opposition to the conventional wisdom that the US will be forced to “pay up” for funding in the form of higher yields to attract investors.
Can the dollar continue to go down while bond yields stay exceptionally low? I guess so, but something eventually has to give, in my experience. Either the dollar will rebound or bond yields will spike. Given the sluggish pace of the US recovery, I suspect it is the dollar that will recover a modest percentage of its safe-haven role, like it did a year ago. Timing? Beats me…There’s always a crisis out there somewhere…
