School of Pipsology ... Clarification needed

“For example, in the U.S., you would focus on the 10-year Treasury note. A rising yield is dollar bullish. A falling yield is dollar bearish.”

This is copied from the School of Pipsology. I need some clarification. If the yield is rising on the 10yr Treasury note, that means that the price of the note is decreasing, right? So if the price is decreasing indicating less demand for the note, and therefore the dollar, how is a rising yield bullish for the dollar??? Thanks!!!

You’re confusing (1) old Treasury notes, already issued at a fixed coupon, and traded in the Treasury market with (2) new Treasury notes being issued today, at today’s interest rate.

The Treasury yield referred to in the School quote is the yield on “old”, existing Treasury notes. Their coupon rate (the interest rate at which they were issued) cannot change — it is fixed. The only thing that can make “old” Treasury notes competitive with “new” Treasuries being issued today is to adjust the price of the old Treasury notes up (or down) to make their implied interest rate (their yield) equal to the new Treasuries.

When current interest rates are rising, the Treasury must offer higher interest rates to buyers of new Treasury bills, notes and bonds, in order to attract those buyers. This improvement in the rate of return that investors can earn in dollar-denominated securities is bullish for the dollar.

At the same time that new Treasuries are offering higher interest rates, the prices of “old” Treasuries are falling in the Treasury market, in order to keep their yields in line with the new Treasuries.

Old Treasuries (rather than new Treasuries) are watched as the benchmark, because the old Treasuries are continuously traded in the Treasury market (often referred to as the secondary market).

So, regarding “old” Treasuries, traded in the secondary market:

• Increasing yields mean U.S. interest rates are rising, which means that investment capital will flow into the U.S. dollar (this is bullish for the dollar).

• Decreasing yields mean U.S. interest rates are falling, which means that some capital is likely to flee the dollar (this is bearish for the dollar).

Clint, thanks for the reply. I appreciate the time you took to answer my question.