The Bond Charts That Matter
Bund Nearing theAll-Time Low in Yield
Bund yields have beengetting crushed on a weekly basis as can be seen in the chart above. With theMarch ECB meeting nearing and inflation expectations plummeting, the market hascontinued its run towards the negative yields. Currently the German curve isnegative all the way up until the 9 year paper. Current levels remain at the13.2bp and below at the all-time low of 4.9bp.2s10s SpreadFlattening Further
The 2 year Tnotes vs the 10year Tnotes spread is now trading below 100bp with further flattening suppressing the US yield curve further as the Fed may stick to their path ofhiking rates in an environment where growth and inflation expectations areglobally low. This is a chart that we have been pointing to for over a yearnow, and if the Fed sticks to their path there could be much more flattening tocome as has been seen in previous hiking cycles.5y5y InflationSwaps Continue to Break Lower
Ahead of the ECB, this isone of the most important charts to keep in mind. The ECB have increased thescope and duration of QE in late 2015 however the market has clearly statedthat it does not believe what they have done is enough to increase inflation.The ECB will likely be looking at this chart, as it is one of their preferredmeasures of medium term inflation expectations, and thinking they need toexecute very aggressively with their monetary policy in order to regainconfidence from the market. Otherwise the economy could begin to believe in adeflationary spiral which is exactly what the ECB do not want.
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