Discussing the article: "Reimagining Classic Strategies (Part VII) : Forex Markets And Sovereign Debt Analysis on the USDJPY"
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Check out the new article: Reimagining Classic Strategies (Part VII) : Forex Markets And Sovereign Debt Analysis on the USDJPY.
In today's article, we will analyze the relationship between future exchange rates and government bonds. Bonds are among the most popular forms of fixed income securities and will be the focus of our discussion.Join us as we explore whether we can improve a classic strategy using AI.
Bonds are among the most popular forms of fixed income securities and will be the focus of our discussion. Bonds may be issued by a Corporation or a Government. Government Bonds in particular are among the safest investments in the World. If an investor wishes to purchase a particular Government’s Bond, they must do so in the Currency of the issuing state. If a particular Government’s Bond is in high demand internationally, every investor desiring to acquire the bond will first convert their domestic Currency into the desired Currency. This may in turn shift the market’s beliefs about a fair valuation of the two currencies' exchange rate.
How well a bond is performing is measured by the yield of the bond. There is an inverse relationship between the yield of a bond and the level of demand for that bond. In other words, as demand for a particular bond falls, the yield of the bond rises to rally demand for the bond. Some successful traders in the Currency markets incorporate this fundamental analysis into their trading strategy. By comparing the yields of mid-long term Government bonds from the 2 countries in any exchange rate, Currency traders may gain an intuition about the economic conditions of the two countries in question.
Author: Gamuchirai Zororo Ndawana