The sharp rise in bond yields emerged as an important market force in recent days. US Treasury yields are stabilizing today with note and bond yields near six month highs. The sell-off in US Treasuries in the past two days is the largest in a couple of years. It has caught the market wrong-footed in light of the disappointing jobs data last Friday and the ongoing Fed purchases. It has taken the widening the the 10-year spread to five month highs (just above 200 bp) to keep the dollar at the upper end of its 2 1/2 month trading range.
The sharp rise in US yields is the single biggest factor driving up global yields this week. Indeed, the 2-year US-German interest rate spread, which we find tracks the euro-dollar exchange rate closely, has moved in Germany's favor over the last few days and it now near 41 bp is the biggest discount for the US since November 26. This suggests that the euro may find support around $1.3180.
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Natalie Zea Brody Dalle Taryn Manning Nikki Cox Carla Gugino
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