Banks

Barclays: life in the old dog yet

Barclays, a former basket case of British banking, is beginning to look inspiringly mediocre. The bank has failed Bank of England stress tests less resoundingly than Royal Bank of Scotland. Investors believe its assets are worth only 10 per cent less than their book value, judging from the share price. Although Barclays’s legal team have […]

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Currencies, Equities

Scary movie sequel beckons for eurozone markets

Just as horror movies can spook fright nerds more than they expect, so political risk is sparking heightened levels of anxiety among seasoned investors. Investors caught out by Brexit and Donald Trump are making better preparations for political risk in Europe, plotting a route to the exit door if the unfolding story of French, German […]

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Currencies

Dollar rises as markets turn eyes to Opec

European bourses are mirroring a tentative Asia session as the dollar continues to be supported by better US economic data and investors turn their attention to a meeting between Opec members. Sentiment is underpinned by US index futures suggesting the S&P 500 will gain 3 points to 2,207.3 when trading gets under way later in […]

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Banks

Basel Committe fail to sign off on latest bank reform measures

Banking regulators have failed to sign off the latest package of global industry reforms, leaving a question mark hanging over bankers who complain they have faced endlessly evolving regulation since the financial crisis. Policymakers had hoped to agree the contentious new measures at a crunch meeting held in Chile this week, but a senior official […]

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Banks, Financial

Banking app targets millennials who want help budgeting

Graduate debt, rent and high living costs have made it hard for millennials to save for a house, a pension or even a holiday. For Ollie Purdue, a 23-year-old law graduate, this was reason enough to launch Loot, a banking app targeted at tech-dependent 20-somethings who want help to manage their money and avoid falling […]

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Categorized | Economy

Central bank divergence drives US and German yield gap to 27-year high


Posted on November 18, 2016

Mind the gap.

Divergent paths for monetary policy in the world’s two largest central banks is making from some striking yield charts.

The spread between US 10-year treasury yield and its German equivalent has now reached its highest level since 1989, in the days before German reunification, according to data compiled by Bloomberg.

Sovereign bonds have been gripped by a brutal sell-off in the wake of Donald Trump’s impending arrival in the White House, with the yield spread between Treasuries and Bunds now climbing above 2 per cent.

Although Bund yields have jumped from their record negative summer lows to around 0.3 per cent this week, US Treasuries have leapt markedly to their highest level in a year at 2.2 per cent (yields fall when a bond’s price rises).

As investors shift their outlook for US inflation in anticipation of some mega-Trumpian fiscal stimulus, things in Europe look far more subdued. ECB president Mario Draghi warned today the eurozone’s recovery remained reliant on the central bank’s policies, with inflation yet to show any signs of sustained upward momentum.

The Federal Reserve is now widely expected to execute its second rate hike in 12 months in December, while the European Central Bank is set to extend its monetary easing measures by six months at its next meeting on December 8.

Flatter European yield curves also reflect a more downbeat look for future growth in the continent, with the prospect of fiscal stimulus in the continent remaining far more modest (more on that here).

Bond investors are now gearing up for a “bear market”, says Michael Hartnett at Bank of American Merrill Lynch, who notes that this week has seen $18bn in global bond outflows – the biggest in more than three years – in the wake of Mr Trump’s election.