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25 Jun 2013
Flash: Fed influence extends to European yields – Deutsche Bank
FXstreet.com (New York) - Regarding yields, it’s worth noting how important US yields are when most of the world is still levering (in other words, issuing more debt relative to economic activity) and hasn't started the de-leveraging process yet, suggests Macro Strategy Analysts J. Reid and C. Tan at Deutsche Bank.
From a markets standpoint, the problem we face is that the US tends to set the price of debt everywhere. Indeed treasury yields tend to be the first building block for the price of all assets globally and any increase in yields will likely expose some of the weaker entities.
“Most of the recent focus has been on EM but Europe's periphery is also being negatively impacted by the Fed.” the analysts warn. Since the lows on May 2nd, 10-year Spanish and Italian have both added more than 100bp, including a 20bp move higher yesterday. On a year-to-date basis, Spanish yields are now basically unchanged (5.12%) and Italian yields are 34bp higher (4.83%).
From a markets standpoint, the problem we face is that the US tends to set the price of debt everywhere. Indeed treasury yields tend to be the first building block for the price of all assets globally and any increase in yields will likely expose some of the weaker entities.
“Most of the recent focus has been on EM but Europe's periphery is also being negatively impacted by the Fed.” the analysts warn. Since the lows on May 2nd, 10-year Spanish and Italian have both added more than 100bp, including a 20bp move higher yesterday. On a year-to-date basis, Spanish yields are now basically unchanged (5.12%) and Italian yields are 34bp higher (4.83%).