We use cookies that are necessary for this site to work. With your permission we would also use analytics and advertising cookies to understand how the site is used and to measure our advertising. Cookie Policy
Yield is the return earned on an investment, typically expressed as an annual percentage. In forex, yield most commonly refers to the interest rate on a country’s government bonds or the central bank’s policy rate. Yield differentials between two countries are a primary driver of currency pair movements and determine swap rates. Higher-yielding currencies tend to attract capital inflows and appreciate, all else being equal.
Suppose US policy rates are 4% and Japanese rates are 0.5%. The 3.5-point differential can make USD/JPY attractive for carry trades — traders buy USD (higher yield) against JPY (lower yield) hoping to earn a swap credit. The swap actually applied is the broker’s rate, which can be lower than the differential or even negative.
