Behind the Yield
Behind the Yield: August 28, 2025
The Dollar’s Grip on Bonds - August 29, 2025
The Dollar’s Grip on Bonds - August 29, 2025
If you just looked at the Fed, you’d think you know where bond yields are going. But that’s not all there is to it. The dollar — and foreign money flooding into, or pouring out of, Treasuries — matters just as well.
Why the Dollar Matters
The Treasures held by foreign investors — about a third of the market — total more than $9 trillion. China has pared back its purchases, but Japan and the U.K. are still big buyers. New players, such as India and Hong Kong, are filling the void.
When those buyers are present, long-term yields remain lower than they “ought to.” When they retreat, yields move higher — even if Powell is signaling cuts.
What Happened This Summer
Foreign inflows to U.S. assets surpassed $300 billion in May. Inflows fell to $78 billion in June. Same Fed, same inflation backdrop, completely different bond market.
That’s why long yields climbed. Not because the Fed got tougher, but because the rest of the world let off the gas.
The Dollar Link
A strong dollar makes Treasuries look more attractive to foreigners: not only do they pick up the yield, but when they convert the coupon payments back into their own currency, they get an FX bump as well. If the dollar falters, that buffer evaporates.
Economists refer to this as interest rate parity — that currencies and rates adjust to keep things on an even keel. You don’t have to explain the formula to clients. Forget that: Treasuries trade in a global market, and the dollar changes who comes to buy.
What Clients Need to Hear
Clients are asking themselves: “Why didn’t bonds rally when the Fed cut?” The typical response is to point to demand from the rest of the world.
It’s not just the Fed and bond yields. Global buyers matter.
The dollar is a component of the return. Strong dollar = more demand. Weak dollar = less.
That’s why bonds surprise you. The yield can move sometimes for reasons you won’t read in the U.S. headlines.
Advisor Takeaway
Your job is not to predict FX flows. It’s a reminder to clients that Treasuries are a product of a global market.
That’s the real story today.
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