At Any Rate Global Rates: European rates market round-up
May 9, 2025
Aditya Chordia, a European Rates Strategist at JP Morgan, and Khagendra Gupta, also a European Rates Strategist there, dive into the nuances of the European rates markets. They discuss the intriguing impact of de-dollarization, shifting demand for Eurozone bonds, and the implications for German yields. The conversation also covers recent developments from the Bank of England, expected economic indicators, and interest rate decisions from the Riksbank and Norges Bank, shedding light on the current market landscape and investment strategies.
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De-Dollarization Benefits Eurogov Bonds
- De-dollarization could lead to diversification of sovereign bond holdings away from US Treasuries to Euro area government bonds.
- Germany and EU bonds stand to benefit most due to their size and credit ratings within the Euro market.
German Yield Outlook Positive
- German 10-year yields sold off recently but offer attractive risk-reward for long duration holdings.
- ECB easing to 1.5%, lower inflation, and potential diversification flows support a bullish duration stance in German bonds.
De-Dollarization Widens Basis Marginally
- De-dollarization pressures the cross-currency basis wider, especially in the 1-2 year part through increased hedging of dollar assets by European real money funds.
- Medium-term flows from USD treasury selling to Eurogovies may offset this effect in the 5-10 year sector.