Perhaps the dollar is trying to tell us something.

It has climbed to its highest level in two months even as oil has slipped back below USD100, hopes of diplomacy in the Iran war have improved and risk appetite has returned to global markets. Normally, cheaper oil and friendlier markets would take some shine off the ultimate safe haven. Yet the greenback keeps rising. Could it be that investors have finally decided to believe the Federal Reserve?

Last week’s quarter-point hike, the Fed’s first in three years, certainly changed the conversation. Markets now attach roughly even odds to another increase in October, have a further quarter-point move fully priced by December and expect more tightening beyond that. Fed officials have reinforced the message that stubborn inflation may require additional action. Rate differentials have consequently shifted further in the dollar’s favour, pushing the euro and sterling to their weakest levels since late July.

So far, so straightforward. Except the same repricing that is lifting the dollar is beginning to produce a rather more intriguing proposition elsewhere: after six miserable years, bonds are starting to look tempting again.

And miserable hardly overstates it. Long-term G7 government bond prices have almost halved since the pandemic lockdowns of 2020, while Treasury investors are enduring another bruising year. Yields on 10- to 30-year government debt across major economies have reached levels not seen in decades. Yet every fresh yield high also improves the prospective return for somebody prepared to buy. With 10-year Treasuries........

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