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1 May 2013
Forex Flash: Euro area ‘systemic risks’ in check - Goldman Sachs
FXstreet.com (Barcelona) - Goldman Sachs analysts note that German Bunds have rallied strongly on concerns related to the political landscape in Italy immediately following the general elections, as well as developments in Cyprus, Slovenia and Portugal, and mounting expectations of an ECB rate cut following evidence that the weakness in growth has spread to Germany.
They note that peripheral EMU spreads have nonetheless continued to tighten throughout April, and the 10-year differential between the US and Germany has remained broadly stable, in favour of the US, suggesting that a Euro area monetary policy ‘surprise’ has probably been the main factor at work. They write, “German long-dated real zero coupon yields are now lowest among the major markets, including Japan and the US, even though the ECB is not conducting bond purchases. This reflects the dislocations in the ‘risk free benchmark’ brought about by the sovereign crisis.”
They note that peripheral EMU spreads have nonetheless continued to tighten throughout April, and the 10-year differential between the US and Germany has remained broadly stable, in favour of the US, suggesting that a Euro area monetary policy ‘surprise’ has probably been the main factor at work. They write, “German long-dated real zero coupon yields are now lowest among the major markets, including Japan and the US, even though the ECB is not conducting bond purchases. This reflects the dislocations in the ‘risk free benchmark’ brought about by the sovereign crisis.”