HIGHS OF THE YEAR
The sell-off in global rates continued with most developed market sovereign yields at the highs of the year. These moves continue to be led by the widening of the euro zone government bond market, with Bunds remaining at the center of the storm. As the charts and tables below indicate, the widening has been historic in nature, from both an absolute (Bunds higher by 85 bps since late April) and relative (Bund 10-year yields are 12x higher during this period) perspective. Most EZ yields have moved in tandem, although all percentage changes trail the move in bunds based on the absurdly low-level that German yields found themselves flirting with in mid-April. While U.S. rates have outperformed the euro zone, the moves have nonetheless been dramatic, with 10-year yields moving through 2.5% for the first time since last September and presently are 30 bps higher than where we started the year. The curve has also bear steepened during the sell-off, with 2s versus 30s, 20 bps wider since the start of the month. Many of these moves are in complete contrast with the prevalent themes at the start of the year, with central bank largess expected to drive global yields to zero, while inflation concerns would keep the curve flat. The steepening in treasuries has in fact occurred without a large increase in breakeven expectations, as longer inflation expectations have been fairly stable during this recent volatility. Also, it was clear to us that the ECB was committed to completing its QE program, which remains at its infancy stages and will take us through 3Q:16.
|
|