How To Setup Bond Yield Spreads In Tradingview
Investors generally use the spread or difference between the bond yields of countries as a possible leading indicator of where the exchange rate might be going. This video shows you how to create that spread in Tradingview.
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
We have a quick question from Tong who asks how we can get a bond yield spread for two currencies to overlay on a currency pair chart in Tradingview. Tong also adds that he has tried to do it, but the scale of the chart comes out all messy, and just wants some advice on how to do it.
Firstly, thanks for the question Tong, the good news is I know exactly what is causing your scaling issues and the even better news is that it’s really simple to solve and will just take you a couple of seconds to fix.
Right, now before I go into the chart setup itself, just a quick look at why we look at bond spreads between currencies in the first place. So, firstly, what is a bond spread? Well, when we refer to bond spreads in the context of FX we are simply referring to the spread or the difference in the yields of the same maturity for two currencies.
For example, we will look at the spread or the difference between the bond yields for let’s say the US 10-year bond yield and the Japanese 10-Year bond yield when we look at the USDJPY pair, or if we are doing analysis on the AUDNZD currency pair we’ll look at the spread or the difference between the Australian 10-year bond yield and the NZ 10-year bond yields.
So, why do we do this? Well as you know, currencies are usually correlated to interest rate expectations. Meaning, if markets think interest rates will rise that should be positive for your currency, and if they think interest rates will fall, that should be negative for your currency.
Now I say usually, because there are of course many other factors that could still see a currency depreciation even if interest rates go higher and factors that could still see a currency appreciate even if interest rates go lower, it all depends on the context.
However, as currencies are generally correlated to their interest rates, and as bond yields reflect interest rate expectations, investors generally use the spread or difference between the bond yields of countries as a possible leading indicator of where the exchange rate might be going.
So, again, I just want to stress that there are of course other factors that impact exchange rates apart from this so just do keep that in mind. But generally speaking, if we overlay let’s say the 10-year yield or one currency with the 10-year yield of another, especially later durations like the 10-year, that should give us a fairly close correlation to what is happening with the exchange rate, and as the bond market is usually very accurate with turns in overall interest rate expectations, it can sometimes act like we said as a leading indicator.
A good example that I always like to refer to be the EURUSD back in 2017 and 2018. As the market was pricing in more and more upside for the EUR versus the USD, the bond spreads started to diverge, and eventually, the EURUSD saw such a massive unwind of the upside and the bond market or the yield spread was a great diverging indicator to tell the market watch out, but in hindsight obviously always easier to spot these things.
Right, so back to your actual question, of how to add a bond yield spread onto a currency pair chart in Tradingview. Well, firstly, select the currency pair that you want to analyse. In your question you spoke of the USDJPY so I’ve just chose that. Once you have your chart ready, go ahead and open up the “Compare” option.
Now, the next step is very important, you don’t want to compare you want to add the symbol to the chart, so when you open up compare, just make sure you select the “Add Symbol” option, because if you don’t you will end up with a scale issue like you mentioned in your question, and we can replicate the issue you are having now.
So, make sure you select the “Add Symbol” option. From here, you are simply going to subtract the bond yields, and keep in mind you always start with the bond yield for the base currency and subtract the quote currency’s yield.
So, in this case, we have the USDJPY, so the Dollar is the base currency which means we start with the US bond yield. So we just say US10Y-JP10Y, now don’t wait for the search to give you an option coz it won’t, just press enter after you’re done typing, and it should give you the spread.
Also, make sure to choose the “overlay this chart” option, otherwise if you add it to the chart it will add it as a sub chart at the bottom.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
----
We interpret and explain price moves in real-time, 24 hours a day. Our team of analysts produce text, video and audio commentary.
You understand the markets and trade with confidence. Learn more at our website here: https://financialsource.co
-----
We have a quick question from Tong who asks how we can get a bond yield spread for two currencies to overlay on a currency pair chart in Tradingview. Tong also adds that he has tried to do it, but the scale of the chart comes out all messy, and just wants some advice on how to do it.
Firstly, thanks for the question Tong, the good news is I know exactly what is causing your scaling issues and the even better news is that it’s really simple to solve and will just take you a couple of seconds to fix.
Right, now before I go into the chart setup itself, just a quick look at why we look at bond spreads between currencies in the first place. So, firstly, what is a bond spread? Well, when we refer to bond spreads in the context of FX we are simply referring to the spread or the difference in the yields of the same maturity for two currencies.
For example, we will look at the spread or the difference between the bond yields for let’s say the US 10-year bond yield and the Japanese 10-Year bond yield when we look at the USDJPY pair, or if we are doing analysis on the AUDNZD currency pair we’ll look at the spread or the difference between the Australian 10-year bond yield and the NZ 10-year bond yields.
So, why do we do this? Well as you know, currencies are usually correlated to interest rate expectations. Meaning, if markets think interest rates will rise that should be positive for your currency, and if they think interest rates will fall, that should be negative for your currency.
Now I say usually, because there are of course many other factors that could still see a currency depreciation even if interest rates go higher and factors that could still see a currency appreciate even if interest rates go lower, it all depends on the context.
However, as currencies are generally correlated to their interest rates, and as bond yields reflect interest rate expectations, investors generally use the spread or difference between the bond yields of countries as a possible leading indicator of where the exchange rate might be going.
So, again, I just want to stress that there are of course other factors that impact exchange rates apart from this so just do keep that in mind. But generally speaking, if we overlay let’s say the 10-year yield or one currency with the 10-year yield of another, especially later durations like the 10-year, that should give us a fairly close correlation to what is happening with the exchange rate, and as the bond market is usually very accurate with turns in overall interest rate expectations, it can sometimes act like we said as a leading indicator.
A good example that I always like to refer to be the EURUSD back in 2017 and 2018. As the market was pricing in more and more upside for the EUR versus the USD, the bond spreads started to diverge, and eventually, the EURUSD saw such a massive unwind of the upside and the bond market or the yield spread was a great diverging indicator to tell the market watch out, but in hindsight obviously always easier to spot these things.
Right, so back to your actual question, of how to add a bond yield spread onto a currency pair chart in Tradingview. Well, firstly, select the currency pair that you want to analyse. In your question you spoke of the USDJPY so I’ve just chose that. Once you have your chart ready, go ahead and open up the “Compare” option.
Now, the next step is very important, you don’t want to compare you want to add the symbol to the chart, so when you open up compare, just make sure you select the “Add Symbol” option, because if you don’t you will end up with a scale issue like you mentioned in your question, and we can replicate the issue you are having now.
So, make sure you select the “Add Symbol” option. From here, you are simply going to subtract the bond yields, and keep in mind you always start with the bond yield for the base currency and subtract the quote currency’s yield.
So, in this case, we have the USDJPY, so the Dollar is the base currency which means we start with the US bond yield. So we just say US10Y-JP10Y, now don’t wait for the search to give you an option coz it won’t, just press enter after you’re done typing, and it should give you the spread.
Also, make sure to choose the “overlay this chart” option, otherwise if you add it to the chart it will add it as a sub chart at the bottom.
-----
If you find this content helpful, you’ll love Financial Source.
There’s a link below were you can learn more about it
https://financialsource.co
