EU bonds underperform – Danske Bank

FXStreet Insights Team FXStreet

It has been a dramatic week in the global bond markets on the back of the German EUR 500bn infrastructure plan as well as more money for the defence spending and the changes to the Debt Brake. Furthermore, EU announced an EUR 800bn defence package. Hence, German and EU bonds underperformed both swaps and US Treasuries significantly, Danske Bank's FX analysts Kristoffer Kjær Lomholt and Filip Andersson report.

France is at risk of being downgraded to A+ this week

"Looking forward, then the focus will be on Germany, where the plan is expected to be passed this week. We have closed our short position in the Bund ASW-spread as we reached out target even though it could widen even further. Given the dramatic rise in the Bund yield of some 40bp during last week, then we recommend going long 10Y Bunds on an outright basis as we typically see a rebound on the back of such a significant rise."

"The positive rating story on the periphery as Greece was upgraded to A from A- by DBRS, while France is at risk of being downgraded to A+ this week as Fitch have them up for review on Friday and have France on negative outlook. The main event in the EU primary market is the expected syndicated deal from EU. Secondly, we have auctions from Italy and Germany and potentially Portugal."

Author

FXStreet Insights Team

FXStreet

The FXStreet Insights Team is a group of journalists that handpicks selected market observations published by renowned experts. The content includes notes by commercial as well as additional insights by internal and external analysts.

Markets move fast. We move first.

Orange Juice Newsletter brings you expert driven insights - not headlines. Every day on your inbox.

Editor's Picks

EUR/USD stays calm near 1.1650 to begin Fed week

EUR/USD struggles to find direction and trades in a narrow channel near 1.1650 on Monday. Investors refrain from taking large positions ahead of this week's critical Fed policy meeting, allowing the pair to stay in a consolidation phase following two consecutive weeks of bullish action.

GBP/USD edges lower toward 1.3300 as markets turn cautious

GBP/USD corrects lower toward 1.3300 on Monday after posting gains in the previous week. The markets adopt a cautious stance ahead of the highly-anticipated Fed meeting, making it difficult for the pair to gather bullish momentum.

Gold remains stuck near $4,200 as markets gear up for Fed

Gold extends its sideways grind at around $4,200 after posting marginal losses last week. The trading action turns subdued on Monday as market participants prepare for the upcoming Fed meeting, which will provide key insights into the short-term policy outlook.

Bitcoin and Ethereum aim for breakouts as Ripple holds at $2

Bitcoin, Ethereum, and Ripple record a minor recovery on Monday, starting the week on a positive note. The retail demand for major cryptocurrencies remains strong despite outflows from Bitcoin and Ethereum Exchange Traded Funds.

The Silver disconnection is real

Silver just hit a new all-time high. Neither did gold, nor mining stocks. They all reversed on an intraday basis, but silver’s move to new highs makes it still bullish overall, while the almost complete reversals in gold and miners make the latter technically bearish.