DM Yields Creeping Higher Opens Up Duration Spreads Versus EM
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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UUID: 7947283
(Bloomberg) -- Emerging-markets rates duration where falling inflation expectations are keeping leaving real rates high, versus developed markets, may generate cross-country alpha with G-4 yields creeping higher.
- EM countries with the steepest curves include Poland (2s10s swap at 100bp, 84th percentile of 5-year range) and Hungary (197bp, 90th percentile)
- The steepness allows to offset positive carry on receiving EM against paying EUR or USD rates
- If growth momentum sustains, there is risk of a synchronized drift higher in DM yields over the next few months via increased term premia, leading to potential reduced foreign demand
- Japanese investors cut their purchases of U.S. bonds in August by more than half from the previous month and also turned net sellers of German and French debt
- NOTE: Treasury rates vol remains low vs binary nature of tax reform, Phillips curve that kicks-in which disrupts vol selling strategies/equity rally; see more here
- NOTE: Tanvir Sandhu is an interest-rate and derivatives strategist who writes for Bloomberg. The observations he makes are his own and are not intended as investment advice
Alert: HALISTER1
Source: BFW (Bloomberg First Word)
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UUID: 7947283