A bond is an investment instrument that can be defined as interest-yielding borrowing instruments issued by the government or private enterprises to meet their financing needs. In the United States, home of the world’s largest bond market, U.S. 10-Year Bond is the most common of these debt securities, with maturities ranging from 1 to 30 years.
Important data, such as FOMC (Federal Open Market Committee) interest rate decisions, growth in the U.S. economy, non-agricultural employment, and inflation, have a great effect on the 10-Year U.S. Bonds. Because it is sold in USD, it is also decisive in the direction of the value of the USD. Fed meets the demand for money that the market needs by buying valuable papers such as bonds at the time it will implement the monetary easing. Thus, demand for the bonds increases and interest rates decrease. Fed’s monetary easing is usually the case to increase inflation when deflationary pressure occurs and to keep foreign trade in balance when the currency overvalued. Considering this, the Fed’s monetary easing and lowering bond rates will depreciate the dollar in global markets and support the tendency towards the currencies of the developing countries. However, USD is expected to diverge positively from the developing country and major currencies. In other words, market participants may prefer 10-year bonds of the United States, the world’s largest economy, for the risk-free yields or protection from the high-risk environment. In such cases, the risk appetite decreases. This situation could lead the less interest in safe investment instruments (XAU, JPY, etc.), let alone the currencies of the developing countries, compared to the U.S.A bonds.