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27 Mar 2013
Forex Flash: Flows into short end of German curve is driving US-German 2 year IR - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman analysts note that the flow into the European safe haven, the short-end of the German curve, is driving the US-German 2-year interest rate differential.
They see that this spread continues to closely track EUR/USD as it widens out in the dollars favour. They note that the German 2-year yield is negative again and German discount (US premium) has widened out to more than 25 bp, the highest level since the very start of the year. They write, “Last year's high was set in August just above 33 bp. With the US 2-year anchored by the US accommodative monetary stance, to see those levels again requires the persistence of high level of anxiety in Europe, which European officials seem willing to provide.”
They see that this spread continues to closely track EUR/USD as it widens out in the dollars favour. They note that the German 2-year yield is negative again and German discount (US premium) has widened out to more than 25 bp, the highest level since the very start of the year. They write, “Last year's high was set in August just above 33 bp. With the US 2-year anchored by the US accommodative monetary stance, to see those levels again requires the persistence of high level of anxiety in Europe, which European officials seem willing to provide.”