So, when US short term interest is cut by X% then long bond "price" will eventually appreciate by the equivalent of X% to maintain the short/ long bond rate differential. Am I being too simplistic here. Why?
Case 1: For EM long bond where the bond is priced in the local currency while USD falling, the bond price should increase by the X% + local currency rate adjustment due to "falling" USD.
Case2: EM long bond as case 1 with USD rising. The bond price should increase by the X% - local curreny rate adjustment due to "rising" USD.
Am I right to view things this way? Can you please give me some hint which way makes more sense. Thanks
David,
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Steven Penticoff
HI David,
So, when US short term interest is cut by X% then long bond "price" will eventually appreciate by the equivalent of X% to maintain the short/ long bond rate differential. Am I being too simplistic here. Why?
Case 1: For EM long bond where the bond is priced in the local currency while USD falling, the bond price should increase by the X% + local currency rate adjustment due to "falling" USD.
Case2: EM long bond as case 1 with USD rising. The bond price should increase by the X% - local curreny rate adjustment due to "rising" USD.
Am I right to view things this way? Can you please give me some hint which way makes more sense. Thanks
Michael
A proper market washout is due, and welcomed. However, corrections are healthy and rotation is the life-blood of the market.