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21 Jun 2013
Flash: Yield spreads breaking out in USD´s favor - Nomura
FXstreet.com (Barcelona) - Nomura strategists note that the recent dollar bifurcation was, to some degree, consistent with moves in global rates space.
They feel that while the initial speculation about tapering created a move in rate spreads in the dollar's favor, the period from Bernanke‟s May 22 speech to the end of last week saw bigger moves in global rates than in the US, in line with the $/G10 selloff. They see that this is is now reversing.
Further, after the clear signal from the Fed, rate spreads are starting to break out in the dollar‟s favor, which is particularly clear in 10-year space. They add that in relation to shorter rates (where the Fed is still promising not to move), the breakout is not yet clear, except versus JPY and CHF. However, given the large cyclical divergence, they would expect a break over time there too, versus GBP and EUR rates. They write, “The catalyst could be stronger US data and/or a clear signal from the ECB on July 4 that it is not going in the direction of the Fed.”
They feel that while the initial speculation about tapering created a move in rate spreads in the dollar's favor, the period from Bernanke‟s May 22 speech to the end of last week saw bigger moves in global rates than in the US, in line with the $/G10 selloff. They see that this is is now reversing.
Further, after the clear signal from the Fed, rate spreads are starting to break out in the dollar‟s favor, which is particularly clear in 10-year space. They add that in relation to shorter rates (where the Fed is still promising not to move), the breakout is not yet clear, except versus JPY and CHF. However, given the large cyclical divergence, they would expect a break over time there too, versus GBP and EUR rates. They write, “The catalyst could be stronger US data and/or a clear signal from the ECB on July 4 that it is not going in the direction of the Fed.”