The US and Eurozone bond yield gap is growing

US 10-year treasury interest since August last year. to date it has increased from 0,5 to 1,5 percent, i.e. three times. At the same time, the interest rate on 10-year German bonds only increased from -0,4 to -0,27 percent. Such a situation may have a significant impact on the currency market, leading to a significant sell-off of the euro to the dollar.

The rise in US bond yields accelerated at the end of January this year, when the administration of President Joe Biden took over power in the country. At that time, the probability of introducing the US $ 1,9 trillion aid plan for the US economy was increasing.

Check it out: How to invest in futures on German bonds

The behavior of Jerome Powell, the American boss, could also have contributed to the increase in interest rates Federal Reserve. In recent days, he has not once mentioned the possibility of easing the rise in interest rates on the debt. This may mean that the Fed does not intend to control yields yet or shift the burden of purchases towards bonds with longer maturities.

During his six-month testimony to the US Congress on Tuesday and Wednesday, Powell stressed that the economy needed support and that the Fed was committed to its current position on financial policy. This is because the economic recovery remains uneven and inflation will continue to rise above 2% for some time to come. Powell also said the Fed did not plan to tighten economic policy by buying fewer assets or raising interest rates.

The comments of the Fed chairman only eased the bond sell-off for a while. As early as on Thursday, the supply returned along with quite significant drops in indices on the US stock exchanges. Importantly, developments in the US bond market and the attitude of the US monetary authorities contrast with what is happening on the other side of the Atlantic.

- In Europe, an increase in bond yields may not be of use to anyone, as the massive bond issue is being prepared to finance the pandemic recovery program for Europe. Already this week European Central Bank He stressed that he will closely monitor the strong increase in the interest rate on the debt. There is therefore a greater chance that it is in Europe, not in the US, that the profitability gains may be suppressed. This, in turn, may lead to widening spreads between the euro area and the US - shows Daniel Kostecki, the main analyst of Conotoxia Ltd., which provides Forex services for portal users Cinkciarz.pl.

What could be the consequences of significant differences in bond rates in the US and in the euro area?

- This situation can have a significant impact on the exchange rates. If yields in the United States grow faster than in Europe, it may be unfavorable for the euro. Moreover, it would be useful to the European Central Bank, which does not accept the exchange rate EUR / USD in the vicinity of 1,23-1,24. The increase in the spread difference between the US and other countries, including Japan and Switzerland, may also cause the sell-off of the Swiss franc or yen, but also and possibly the euro soon. All of this can happen until the Fed says "stop" to the rise in US bond rates - is established by the analyst Conotoxia Ltd.