Spreads in the 2 year yields as Treasury / Bund Vs Bund / Treasury reveals oversold Bund /Treasuries Vs a trend just beginning in the Treasury / Bund relationship. Despite oversold Bund / Treasuries, the distance to align the distribution correctly is quite small in terms of the last monthly average at negative 0.891. Currrent Bund / Treasury averages from 1 year to 10 are aligned correctly. From 1 year to 10 year averages, the 1 year begins at -0.7233, 2 year -0.4883, 5 year -0.0924 and 10 year at -0.0821. Viewed as interest rates from 1 year to 10 then 1 year begins as 0.276, 0.5117, 0.907 and 0.917. The 10 year range in terms of averages reveals 0.276 to 0.917 or -0.7233 – -0.0821. Yet the last year’s range in terms of monthly averages spans from -0.891 to -0.507 or 0.109 to 0.479. The vast majority of trading activity in the past year occurred at the 1 and 2 year averages. Despite oversold current Bund/ Treasuries, neither the 1 or 2 year averages threaten a price break above either averages. To offer what oversold means in relation to the averages, the distribution aligns when the 1 year achieves 0.135, 2 year 0.241, 5 year 0.387 and 10 year at 0.064. The 1 and 2 year price alignments remains below the 1 year average
The 2 year Treasury / Bund averages align from 1 year to 10 as 0.4173, 0.3353, 0.0754 and 0.0737. Averages 1, 2 and 10 year are oversold from the last monthly average at 0.447 while the 5 year is overbought but not to any great degree. One reason for its overbought condition is its misaligned in terms of the 10 year average due to its cross below the 10 year. The last year’s monthly average range spanned from 0.269 – highs at 0.567. Current prices trade above the 1 year average. To align the Treasury / Bund distribution from the 1 year average to 10, prices must achieve 0.498, 0.461, 0.432 and 0.885 at the 10 year. Points 0.88 and 0.06 in Bund /Treasuries is still a far distance.
Treasury / Bund Vs Bund / Treasuries correlates at the 1 year average at 0.13% then the jump to -0.73% at the 2 year, -0.96 at the 5 year and -0.99 for the 10 year average. The 1 year correlation at 0.13 is most revealing as it warns of either an imminent break or a big bounce is ahead. One aspect to the big bounce scenario is the Correlation in US 2 Year Vs 2 year German bunds at the 1 year average reveals -0.50% correlations then -0.82% at the 2 year average.
The EUR/USD correlates to the Treasury / Bund at the 1 year average at 0.60% then remains negative from the 2 year to 10 year averages. The 2 year begins at -0.38, then -0.84 and -0.70 at the 10 year. The EUR/USD correlations are positive throughout the enire Bund / Treasury set of averages from 1 year to 10. The point most revealing to watch is the possible break between the Treasury/ Bund and Bund / Treasury relationship.
Brian Twomey Inside the Currency Market, btwomey.com