Throw A German ‘Log’ On The Possible Fedwire Fire

One other fascinating, corroborating angle to the short-run picture comes at us from Europe, specifically Germany. As illustrated yesterday, there’s a whole bunch of market prices/indications from around the world which have keyed in on February 24-25 as a possible turning point. The most obvious candidate which may have triggered it would be February 25th’s major US Treasury selloff.

But if that was the case, why would there have been a split from Germany’s bunds (schatzes, too)? These two crucial collateral heavyweights trade in tandem quite often, more often than not, and when they don’t it gets your attention beyond the idiosyncrasies plying each – such as the idea of COVID impacting Europe far more than the US, especially given the utter vaccine debacle developing over there.

These two were easily synced up from early November through February 26, at least moving in the same direction. German federal yields like their Treasury counterparts were instilled with some relatively modest reflationary optimism, far less in Germany, rising from around -64 bps to upwards of -27 bps and the highest since last June (so not nearly the US level of BOND ROUT!!!!)

Then, again, in late February the change which has prevailed for now an entire month. While four weeks is still within the realm of the short-term, it’s yet another, and a key set of numbers, coming down on the anti-reflationary side of the ledger. While not yet more than a potential market fluctuation, something clearly changed, though what, exactly, did isn’t clear nor what it may mean outside the immediate future.

We can try to make reasonable guesses, though. Not just in how the German curve shifted, but the perhaps more obvious timing factoring other factors contributing to the inflection: Feb 26 top in bunds/shatzes; Feb 25 big selloff in USTs; Feb 24 Fedwire. If this is merely COVID differentials, so to speak, why New Zealand, too? And, of course, CNY like copper and the like.

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Disclosure: This material has been distributed for informational purposes only. It is the opinion of the author and should not be considered as investment advice or a recommendation of any ...

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