Thursday, 25 January 2018

US bear flattening and the Euro

As US curve bear flattens with xccy swap costs it must be low/neg carry for Eurozone banks to hold treasuries and swaps. They bought ~USD600bn of Treasuries after 2012 as part of EU QE leakage and swap spreads also went negative.

Unwind of this is pressuring the USD/ Euro exchange rate, pushing swap spreads to positive and pushing up the overall belly of the US curve?

This is transmission of QE unwind/ Fed rate hikes.

Thought Kevin Muir's comments here were interesting:

https://www.themacrotourist.com/posts/2018/01/24/swapspreads/

EU QE leakage:

http://strategicmacro.blogspot.co.uk/2017/04/ecb-qe-leaked-into-treasuries-in-xccy.html

Treasury holders:

http://ticdata.treasury.gov/Publish/mfh.txt

Just looking through the numbrs above the main EU countries and Cayman have bought about $100bn more in the year to November. Cayman is flattish YoY but should be a source for a fair amount of the EU holding.

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