News & Analysis at your fingertips.

We use a range of cookies to give you the best possible browsing experience. By continuing to use this website, you agree to our use of cookies.
You can learn more about our cookie policy here, or by following the link at the bottom of any page on our site.

0

Notifications

Notifications below are based on filters which can be adjusted via Economic and Webinar Calendar pages.

Live Webinar

Live Webinar Events

0

Economic Calendar

Economic Calendar Events

0
Free Trading Guides
EUR/USD
Mixed
Oil - US Crude
Mixed
Wall Street
Mixed
Low
High
of clients are net long.
of clients are net short.
Long Short

Note: Low and High figures are for the trading day.

Data provided by
Gold
Bearish
GBP/USD
Mixed
USD/JPY
Mixed
More View more
Real Time News
  • The market’s preferred ‘fear indicator’ shows a persistent uncertainty around the near future. What can our current conditions and history tell us what to expect from the #VIX through the final two months of the year?https://t.co/jlhcFhH4sI https://t.co/zIrEjxqymJ
  • #Stock market performance is considered an important predictor of the economic outlook. What else can it be used to project? https://t.co/ViTMl19TW3 #Elections2020 https://t.co/methLCaBho
  • What are some monetary policies that could affect Gold this quarter? Get your Gold free forecast here: https://t.co/b9XwwYS9uJ https://t.co/8OIZVJnaD6
  • A #Euro reversal off technical downtrend resistance now risks a larger correction in price. Here are the levels that matter on the $EURUSD weekly chart. Get your #currencies update from @MBForex here: https://www.dailyfx.com/forex/technical/article/fx_technical_weekly/2020/10/31/Euro-Technical-Outlook-EURUSD-Breakdown-Aims-For-Multi-month-Lows.html?QPID=30472&CHID=9 https://t.co/iVhmCXi9EG
  • We are days away from the US Presidential election and the markets are caught in the vortex. A contested outcome would raise serious volatility for the markets whereas a decisive outcome seems to support bullish $SPX and Dollar views from the market rank. https://www.dailyfx.com/forex/video/daily_news_report/2020/10/31/SP-500-and-Dollar-Forecast-Leads-Global-Markets-with-Elections-Expectations-.html https://t.co/JnJbyu6TRT
  • The future implications of the #Elections2020 may influence $AUDUSD following the #RBA and #Fed rate decisions as Congress struggles to pass another round of fiscal stimulus. Get your #currencies update from @DavidJSong here: https://t.co/soPu0Wefz2 https://t.co/UWsERr2AYh
  • Gold prices declined in the aftermath of bearish technical cues, but a key zone of support was reinforced. $XAUUSD volatility risk is elevated ahead of the #Elections2020. Get your #metals update from @ddubrovskyFX here: https://t.co/gWOxdqk8OL https://t.co/gBMgF0YNjH
  • USD awakens, placing GBP/USD on the backfoot, while EUR/GBP cracks 0.90. Get your #currencies update from @JMcQueenFX here: https://t.co/fndMQJLul8 https://t.co/elz5gNAKrB
  • What are some factors impacting Euro’s forecast this quarter? Get your free forecast here: https://t.co/kpBYVz31Bd https://t.co/7EzMPg9Kqg
  • Emotions are often a key driving force behind #FOMO. If left unchecked, they can lead traders to neglect trading plans and exceed comfortable levels of risk. Read on and get your emotions in check here:https://t.co/eILWbFgHRE https://t.co/DjMdgL5x19
Treasuries part 1:  A History of US Debt

Treasuries part 1: A History of US Debt

2012-03-28 16:01:00
James Stanley, Strategist
Share:

When you are trading in the Forex market – you are trading interest rates. Maybe more precisely, you are trading interest rate expectations.

And as great as it might be for those expectations to always be positive, that's simply not true in the slightest: Many of these expectations are negative.

Traders in the Forex market know what I’m talking about. A quick rush of bad news, and before you know it traders have already flocked to the US Dollar, leaving yesterday’s trend in the dust. This will often be correlated with movements by traders into treasuries; and this can be an advantageous tool for Forex traders to look to take advantage of.

Traders willingly dump their higher yielding Australian Dollars, and New Zealand Dollars, and Euros, Lira, Zlotties, Loonies: You name it, and traders willingly choose to dump their higher yielding currencies in favor of a lower yielding one.

Treasuries_part_1_history_body_Picture_4.png, Treasuries part 1:  A History of US Debt

Created with Marketscope/Trading Station

To new traders this might not make sense. Over the next 3 articles, we are going to outline to you exactly why this happens. We’re going to show you what you can watch so that you might be able to position yourself before its too late. And most importantly, we’re going to teach you about an asset that should be in every trader’s knowledge base: The United States Treasury Bond.

History of Treasuries

The creation of the US Treasury bill changed the way that economies around the globe would conduct business.

Heading into World War I, it became obvious to the United States government that they would not be able to pay for the war effort with the amount of funds available. A contentious national debate began about how to finance the war.

Previous to this debate, governments would generally borrow from each other. These governments held taxing power over their populace; so if more income was needed taxes could simply be raised to cover the governmental shortfall.

But in 1917, three years after World War I had engulfed the globe, finding governments with money to loan was impossible; so an alternative needed to be created, and this is where the ‘Liberty Bond’ came into fruition.

The Liberty Bond was to be sold to American citizens, with the premise of financing the war with a combination of higher taxes, and sales of these new ‘Liberty Bonds.’ This sparked a cultural phenomenon in the United States, with a rush of patriotism and financial backing to support a social cause in the form of warfare. Below is one of the many advertisements that was used to help encourage purchases of Liberty Bonds.

Treasuries_part_1_history_body_Picture_1.png, Treasuries part 1:  A History of US Debt

Advertisement offering the initial United States’ Liberty Bond

As you can see from the above graphic, these bonds were marketed as the safest investment in the world, as they were backed by the full faith and credit of the United States Government. The safety of these investments is what is most important to understand. The world was in chaos, but this investment offered a safe place for people to invest their money and even earn some interest.

While it was certainly a possibility that the United States would not be able to meet this obligation, and make good on the investment; it was highly improbable, and at that stage of the war (1917) most of the world powers were beleaguered from prolonged combat.

After the war, as the original Liberty bonds were coming due, the United States Treasury department discovered that they were unable to pay back all of the loaned funds. So, the Treasury re-financed the Liberty Bonds with new debt issuances; initiating the cycle that remains in effect today: Refinancing debt with more debt pushing the responsibility of paying back the principal further down the road.

But an amazing thing happened with the creation of the Liberty Bond: The United States government realized that through the issuance of debt they could finance their goals; whether that goal is to win a war, improve upon the opportunity for prosperity, or a re-invigoration of infrastructure that would provide economic stimulus to a broken economy (Roosevelt’s New Deal).

This theme caught on, and this changed the world.

In our next article, which will be available Monday, we’re going to begin looking at individual Treasury issues by examining the structure and pricing of US Treasury debt, and then in part 3 – we’ll examine how the Forex Trader can use Treasuries to get trading ideas.

--- Written by James B. Stanley

To contact James Stanley, please email Instructor@DailyFX.Com. You can follow James on Twitter @JStanleyFX.

To join James Stanley’s distribution list, please click here.

How a Currency Can Change the World

How to Manage the Emotions of Trading

Will the Weakness in Japanese Yen Continue?

Short-Term Momentum Scalping in the Forex Market

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

DISCLOSURES