FOREX-Rising U.S. yields push yen to lowest in nearly 3 years

BY Reuters | TREASURY | 10/12/21 04:10 AM EDT

* Graphic: World FX rates

By Saikat Chatterjee

LONDON, Oct 12 (Reuters) - The Japanese yen held near its weakest levels versus the U.S. dollar in almost three years on Tuesday as a relentless rise in Treasury yields widened the yield advantage in favour of the greenback.

The dollar was at 113.19 yen at 0809 GMT having touched 113.50 in Asian trading, its weakest since December 2018.

The yen's recent weakness -- falling 4% in three weeks -- comes at a time when global bond yields have surged due to inflationary concerns. Ten-year U.S. yields topped 1.60% for the first time since late May.

"The pick-up in market-based measures of inflation expectations and the hawkish shifts from central banks outside of Japan are contributing to the sell-offs in global fixed income markets and the yen," MUFG strategists said in a note, noting the yen has the strongest correlation with U.S. yields.

A Deutsche Bank monthly market sentiment survey in October noted that an overwhelming majority of respondents expect U.S. Treasury yields to rise from current levels.

The yen also stayed in sight of a multi-month lows against other majors with sterling, the euro and the Aussie dollar all trading just off three month highs hit against the Japanese currency the previous day, when the Aussie enjoyed its best session against the yen in eleven months.

The dollar index, which measures the greenback against a basket of other major currencies was at 94.30, not far from a one-year high of 94.504 touched at the end of September, as traders positioned themselves for the U.S. Federal Reserve to announce a tapering of its massive bond buying programme in November.

"The primary driver of the move is the further rise that we've seen in U.S. Treasury yields - so it's a fairly simple story of a widening rates differential...adding to the attraction of the carry trade," said National Australia Bank's head of foreign exchange strategy, Ray Attrill.

In cryptocurrencies, bitcoin edged off a five month high, falling 1.3% in Asian trading to $56,700. Ether , the world's second biggest cryptocurrency dropped 1.54% to $3,489.

(Reporting by Saikat Chatterjee; Additional reporting by Alun John in HONG KONG; Editing by Kirsten Donovan)

In general the bond market is volatile, and fixed income securities carry interest rate risk. (As interest rates rise, bond prices usually fall, and vice versa. This effect is usually more pronounced for longer-term securities.) Fixed income securities also carry inflation risk and credit and default risks for both issuers and counterparties. Unlike individual bonds, most bond funds do not have a maturity date, so avoiding losses caused by price volatility by holding them until maturity is not possible.

Lower-quality debt securities generally offer higher yields, but also involve greater risk of default or price changes due to potential changes in the credit quality of the issuer. Any fixed income security sold or redeemed prior to maturity may be subject to loss.

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