The spread between interest rates for the bonds of two different countries can be an indicator of where the currencies of those countries is likely to go. When the bond spread widens, the currency with the bonds paying a higher interest rate is likely to appreciate. The currency with the lower rates may fall in value.

Fixed-income securities (such as bonds) are an investment type for conservative investors who want to be paid a fixed payment on a specific timeline.

In theory, economies that offer higher interest rates on their fixed-income securities should attract more investment into those securities. After all, who doesn’t love the idea of being paid a higher rate of return than what they would typically receive from another country?

Let’s take an example of how this might play out. Imagine that the United Kingdom is offering a 2.5% interest rate on 5-year bonds. Meanwhile, the United States is only offering a 1.5% rate for the same timeframe on its bonds. In that case, investors would be attracted to the higher rate offered in the United Kingdom. That could push the GBPUSD higher as the pound makes up ground on the dollar. Investors see the economy of the UK as stronger than the United States at that moment, and they are ready to pounce on the opportunity.

Those who want to use fixed-rate securities as a potential data point for their currency trading can review the data that is available about these interest rates at a few different financial publications. Chief among them are:

These are generally pretty accurate readings of what one can get paid for certain fixed-income securities. On top of that, they can provide information to you about how the fixed-rate securities of a wide variety of countries are performing. That might be extremely useful information for you to put to use in your trading strategy immediately.

Nations’ bonds even have cool nicknames! Here are a few for your reference:

United States U.S. Treasury bonds, Yankee bonds
United Kingdom Gilts, Bulldog bonds
Japan Japanese bonds, Samurai bonds
Eurozone Eurozone bonds, Euribors
Germany Bunds
Switzerland Swiss bonds
Canada Canadian Bonds
Australia Australian Bonds, kangaroo bonds, Matilda bonds
New Zealand New Zealand bonds, Kiwi bonds
Spain Matador bonds

Don’t overlook something like this when gathering information. You will want to collect every indicator that you can to provide a full picture of what is happening in the Forex market.


Disclaimer: All information provided here is intended solely for study purposes related to trading financial markets and does not serve in any way as a specific investment recommendation, business recommendation, investment opportunity, analysis, or similar general recommendation regarding the trading of investment instruments. The content, in its entirety or parts, is the sole opinion of SurgeTrader and is intended for educational purposes only. The historical results and/or track record does not imply that the same progress is replicable and does not guarantee profits or future profitable trading records or any promises whatsoever. Trading in financial markets is a high-risk activity and it is advised not to risk more than one can afford to lose.