Treasury / Bund V Bund /Treasury Spreads and EUR/USD

This article was just submitted to so it lacks deeper specifics as is the criteria for Notice no bond or interest rate articles posted anymore on that site. Maybe nobody reads bonds and interest rate articles. Speaks tons of volume about that site. Back to my points. Mention a target in your words, they deep six your article. Mention specific points, they deep six your article. So had to maintain generalities. Point is this article will be expanded greatly on many more points specific to overall currency markets. My friends at Fxstreet, Jason, KMK I’m coming bare with me a sec

10 Year Bund / Treasury Spread Vs EUR/USD

The 10 Year Bund / Treasury spread at its last -1.55 monthly average is approaching important levels. Just below lies the 1 year monthly average at -1.5648 and far below lies the two year average at -1.3202. The 1 year average is oversold while the two year average is beginning to travel to overbought territory. Further out howvever is the 5 and 10 year averages that reveal most overbought as those averages are located at -0.6776 and -0.5122. The one year range in terms of monthly average closes reveals a low of -1.099 to a hgih of -1.742. Viewed as an interest rate, ranges lie between -0.099 and -0.74. A far distance still exists before current monthly averages or ranges threaten to hit the European deposit rate.

The Bund / Treasury relationship Vs EUR/USD is most revealing at the two year point as the correlation is 0.79 or 79%. The one year average at a 0.53 correlation, 5 year at 0.56 and 10 year at 0.67, indicates the EUR/USD price is driven by the two year average with little correlational assistance from remaining averages.

The opposite scenario to the Bund / Treasury spread is the Treasury / Bund relationship. The last monthly average at 1.55 as well is approaching its vital one year average point at 1.5648. The larger range over the last year’s monthly average closes is found between 1.742 and a low of 1.457. Viiewed from the 1 year V 2 year average, the range is found between 1.5648 – 1.3202. Further below is found the 5 year average at 0.6776 and 10 year at 0.5092. The correlational relationship with EUR/USD from 1 year to 10 is completely negative and most particularly negative at the 2 year average. A break of 1.5648 sees a higher Treasury /Bund spread. Yet any price rises sees the 5 and 10 year averages enter more overbought territory than is its present overbought condition.

To further view both relationships, the US 10 year yield Vs its 10 year German counterpart reveals a correlation at the one year at 0.89, two year 0.93, 5 year at 0.65 and 0.87 for the 10 year average. In terms of yields and the EUR/USD, the two year average will be the main price driver over the next few weeks. From Friday’s German 10 year yield close at 0.797, a break must be seen just below at the 1 year average at 0.596 to head lower. The US 10 year closed Friday at 2.347 and supports are found below at 2.317 and 2.161. Above resistance points begin at 2.412 then 3.160. The US 10 yield is in a crucial position and its the yield that will drive the next leg in the Treasury/ Bund spread.

Brian Twomey, Inside the Currency Market,


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