Interatlantic spread is the spread between the 10Y US yield and the 10Y germany yield.
Below I tried to look at the main drivers. Let's look at them one by oneBelow I tried to look at the main drivers.
Let's look at them one by one.
1) Economic momentum spread (purple) Below the two index I use. A mild winter allowed Europe to growth more than expected (using less gas too). In USA we had also the start of a stress crisis on regional banks that impacted credit and so sentiment/growth
2) Surprise index spread. While that one above is a pure momentum of economic data (3M change, 6M change, etc) this one is a surprise vs initially expected levels. Looking at this, Eurozone recently started to appearing weaker than expected
Using bloomberg surprise monitor ECSU it's clear that some industrial data surprise on the downside (germany industrials data and productions, but also industrial production this morning). This is an indication that Chinese reopening is not so industrial driven as expected.
3) Monetary policies: I use 1y1y OIS as a proxy. It's not a surprise FED is ahead in the hiking cycle vs ECB. I think we saw the last hike by the FED but also if there will be 1 more, we saw yet the hawkishness peak (switching from 50 to 25bp, no more pre-committed hikes..)
On a long term window and horizon central banks are the most important thing to watch ("don't fight the FED). Also because they move their monetary policies looking at macro data (growth and inflation).
While I think surprise index is more important: - on short term time frame (below some micro waves, that are usefull for swing trading, that I like to play) - in period with more stability regarding monetary policies
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Credit_Junk
great writing ... thank you!
Love the idea. I think finding ways to get short dollars for other reasons, with a possible kicker of a debt ceiling hiccup, looks pretty interesting right now