U.S. Dollar Rallies after Down Day
By Laif Meidell, CMT, president of American Wealth Management, and portfolio manager of the AdvisorShares Meidell Tactical Advantage ETF (MATH)
The U.S. dollar rose on Thursday, bouncing back from Wednesday’s decline, with the Deutsche Bank Long U.S. Dollar Futures index gaining 1.51 percent on the day. The U.S. stock market started the day on a down note, but by the end of the trading day some areas of the stock market had turned positive. Though the major indexes, such as the Standard & Poor’s 500, closed 0.49 percent lower on Thursday, the Russell 2000 (small-cap) index recovered from early selling to close the day higher by 0.19 percent, a new all-time closing high. Historically, when small-cap stocks are outperforming large caps, it tends to indicate the market has further to go on the upside.
The 10 Year U.S. Treasury rate rose slightly on Thursday to close at 1.95 percent, while over in Europe the 10 Year German Bund slipped to 0.18 percent. Low interest rates across the globe are an indication of a broad deflationary problem throughout the world, along with foreign central banks’ attempts to fight the problem. Switzerland’s 10 Year government bond has a yield of -0.09 percent, or in other words investors are paying Switzerland to let them keep their money.
I’m not sure who would be willing to lend money to the Greek government for 10 years, but for those who do, the current rate on their 10 Year bond is 11.69 percent. Let’s just hope they collect. Of course, there are those countries that seem a little more stable and were you can get a higher interest rate, such as New Zealand paying 3.20 percent for 10 years or Brazil paying 4.90 percent. With all overseas investing, one has to deal with the currency rate risk, which adds another layer of risk to the equation.
For the week, the top-performing ares of the bond market were high-quality longer maturities, with the Barclays U.S. 20+ Year Treasury index gaining 2.91 percent over the past five trading days. That was followed by the Barclays U.S. Treasury inflation Protected Securities index, rising 1.38 percent over the same period.
This commentary originally published in the Reno Gazette-Journal. Performance numbers used in this article were obtained through eSignal and are not guaranteed to be accurate.