Re: Why will the dollar rally?
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OK, What if any relationship is there between Fed overnite rates and yields on Treasury Bonds?
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tons. i'm assuming you mean effective fed funds rate as overnight rate.
for treasuries do you mean 3mo? 1yr? 2yr? ...10yr? 20yr? 30yr?
it all depends on many factors but generally:
short term (3mo-2yr) treasuries typically are driven mostly by expected and realized monetary policy.
longer term treasuries are more driven by inflation expectations since in the long run real yields are mean reverting and inflation rates can move around alot more. in other words, volatilities of real yields drop off while volatility of inflation can increase over time.
further, the reverse can be true. yields in the mkt can influence fed policy. if long rates are artificially low, this might result in the fed holding off on interest rate cuts since the mkt is already accomodative.
you have basically asked one of the most fundamental macroeconomic relationships.
hopethis helps
Barron
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