Has the market got the Eurozone spreads wrong
Has the market got the Eurozone spreads wrong? There is a major issue with the market's reactions this year regarding Eurozone bond spreads. The market seems to have forgotten the lessons around sovereign risk from the Eurozone crisis only a few years ago believing that the European Central Bank (ECB) will protect them. If the market continues reacting to the ECB's actions by pouring money into Eurozone bonds and lowering their yields, we may see the spread between Eurozone bonds and US Treasuries widen further. Domestically, the fall in the terms of trade should mean a weaker Australian dollar. However, our bond spread is looking increasingly attractive, particularly for a AAA rated country. This is likely to boost demand for our securities. The question is, if this fall in Eurozone spreads continues and the Australian dollar continues to strengthen, could we see further rate cuts? Read our article here: (VIEW LINK)
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