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from Breakingviews:

German yield curve is the safest one to play

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

 Bull flattening may sound like an exotic, and rather cruel, sport, but for today’s bond investor, it describes an investment opportunity. Some juicy bear flattening is also available, although it comes with somewhat more risk.

The flattening refers to shifts in yields “along the curve,” as they say in the trade. The gap between the yields of two-year and ten-year sovereign debt has been narrowing for several major issuers. In Germany, the so-called 2/10 spread has fallen from 174 basis points in January to 98 basis points, the lowest since 2008. The decline in the UK over the same period is from 249 to 168 basis points. In the United States, it is from 265 to 194 basis points.

The reasons for these shifts couldn’t be more different. In the U.S. and the UK, shorter-dated bond yields are rising faster than longer-dated ones. This occurs when official policy rate rises are expected, because the economy is performing better. It is referred to as a bear flattening.

from Breakingviews:

“Seller beware” when profiting from market calm

By Swaha Pattanaik

The author is a Reuters Breakingviews columnist. The opinions expressed are her own.

Seller beware. That is an unusual warning, but it applies right now to the options market. Sellers of protection against large price moves have been pocketing gains. But many will suffer losses if markets become less calm.

from Breakingviews:

French persist in dead-end strong-euro moaning

By Pierre Briançon

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

Once again, a senior executive of Airbus  is complaining about the euro’s strength. Fabrice Brégier, the pan-European aircraft maker's current boss, told the Financial Times that the European Central Bank should do something about the “crazy” currency, the strength of which is hurting earnings. A few years ago it was Louis Gallois, then chief executive of Airbus’ parent EADS, who regularly vented his frustration with the central bank. Curiously, those complaints are never heard when Airbus or EADS is headed by a German executive.

from Expert Zone:

Currencies and the collapse of globalisation

(Any opinions expressed here are those of the author and not of Thomson Reuters)

We live in stirring times. The president of the European Central Bank, Mario Draghi, crossed the monetary policy Rubicon and cut one of the euro area’s key interest rates into negative territory. This is dramatic stuff, as even the most economically oblivious are likely to recognise that negative interest rates are a radical policy.A picture illustration of Euro banknotes and coins taken in central Bosnian town of Zenica

At the same time, the United States Federal Reserve is gracefully gliding out of its quantitative policy position - and by October that money printing process is likely to be effectively at an end. The question from most investors is therefore “what next for U.S. monetary policy?”.

from MacroScope:

Euro needs the Fed, or QE, for the next leg down

EIt has become increasingly clear it takes a lot more than words to sink the euro.

The European Central Bank cut rates as low as they will go on Thursday and announced another round of cheap cash for banks, hoping the euro, which has helped knock down inflation in the fragile euro zone economy, will fall.

from Breakingviews:

Europe slides towards the next Minsky Moment

By Neil Unmack

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

There’s little doubt that markets think the euro crisis is over. Bond yields have fallen below pre-crisis levels for most of the countries formerly known as peripherals; the grab for southern European assets is a crowded trade. Could this be the prelude to the next Minsky moment?

from MacroScope:

Strong euro may be a monster Draghi can’t tame

Mario Draghi, President of the European Central Bank (ECB), addresses the media during his monthly news conference at the ECB headquarters in FrankfurtECB President Mario Draghi may have created a monster when he declared nearly two years ago that he will do “whatever it takes” to save the euro.

Given that Draghi has now openly pegged the outlook for monetary policy at least partly to the exchange rate, the prospect of both short-term and long-term investors buying the euro is a worrying obstacle for policy.

from MacroScope:

Prepare for a razor-thin rate cut from the ECB in June. But what will it achieve?

RTR3OBCB.jpgA consensus appears to be slowly building for a carpaccio-slice interest rate cut from the European Central Bank next month.

What is also becoming increasingly evident is that it wouldn't do much good.

Through economic research notes with titles like “ECB likely to do something next month” (JP Morgan), “ECB comfortable about acting next month” (Barclays), “ECB to act!... next month… (very probably)” (Rabobank), you get the depth of just how reluctant this central bank is to do anything, for all the talk of being ready to act.

from Breakingviews:

Pound joins euro as weak dollar victim

By Ian Campbell

The author is a Reuters Breakingviews columnist. The opinions expressed are his own.

The pound has joined the euro in the unwanted currency strength camp. There are British factors but the main reason is that excessively loose U.S. monetary policy is distorting currency markets - and other markets besides. Trouble is in store.

from MacroScope:

ECB still the major source of funding for banks

European Central Bank President Draghi smiles during the monthly ECB news conference in FrankfurtThe European Central Bank is still the main funding source for banks even if it is not acting as lender of last resort for governments in the currency bloc.

On Tuesday, banks took nearly 173 billion euros from the ECB at its weekly tender, the highest since June 2012 and well above a Reuters poll consensus of 130 billion euros.

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