Chart of the week

U.S. bond yields leave German yields further behind. Is the dollar following suit?

The gap in yields on 10-year U.S. Treasury bonds and German Bunds has widened to almost 2.4 percentage points, the highest it has been since 1989.

In late April, U.S. yields rose, and the bond market has reached several interesting marks. For one thing, 10-year U.S. Treasury bond yields finally traded above 3%. Pundits were quick to point out that except for a couple of trading days around New Year's Eve of 2013, this hasn’t been the case since July 2011. Another "we haven’t traded at that level since" indicator concerned the steepness (or shall we say flatness) of the yield curve : The difference between 2-year and 10-year Treasury yields declined to 43 basis points, which is the flattest reading since September 2007. An even more remarkable reading could be observed in the spread between 10-year U.S. and German sovereign bond yields: At a level of almost 2.4 percentage points, one has to go back to 1989 to find a similar yield difference, as outlined in our "Chart of the Week".

According to Torsten Strohrmann, head of global rates EMEA at DWS, this reflects a variety of reasons. 1. A different stage in the monetary policy cycle. 2. Moreover, fiscal policy is on a diverging path: While European governments, not least due to the bad experience during the Euro crisis, have cut their deficits, the shortfall in U.S. public sector finances keeps rising. Over the medium term, higher public financing is likely to drive Treasury yields further upwards. 3. Finally, economists have become more optimistic on the prospects for economic growth in the U.S., and a little more cautious in Europe.

In itself, the transatlantic rate differential is nothing new. The gap between U.S. Treasury bonds and German Bunds has been widening for almost 10 years. Over the past year, this has done little to boost the dollar in foreign exchange markets. But for the last 10 days or so, the dollar has been making up lost ground against the euro. It is now trading at the highest level since mid-January. We believe that the greenback has gotten over its prolonged weakness, and would not be surprised if it continues to strengthen. Strategically, we expect the dollar to trade at 1.15 against the euro on a 12-month time horizon.

Sources: Bloomberg Finance L.P., Deutsche Asset Management Investment GmbH as of 4/26/18

08. Jun 2018

Chart of the week

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01. Jun 2018

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24. Mai 2018 Italy

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13. Jul 2018

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03. Jul 2018

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19. Jul 2018 CIO Special

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29. Jun 2018

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The dollar experienced a wild ride - but might now be in for a bit of a breather

20. Jul 2018 Focus Topic

Let's make finance sustainable

The march towards sustainable finance looks unstoppable.

19. Jul 2018 Macro

Fasten your seatbelts

The outlook for the global economy continues to look solid, but risks are growing.

19. Jul 2018 Multi Asset

A never-ending late cycle

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20. Jul 2018 Macro

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13. Aug 2018 CIO Flash

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Turkey keeps investors nervous. But economic contagion should be limited.

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03. Aug 2018 Investment Traffic Lights

Investment Traffic Lights

Our tactical and strategic view

02. Aug 2018 Americas CIO View

Americas CIO View

EM Asia upside is worth the risk despite trade conflict

01. Aug 2018 Macro

Too early to panic

To make sense of trade tensions, we introduce two tests worth watching.

02. Okt 2018 Investment Traffic Lights

Investment Traffic Lights

Our tactical and strategic view

02. Okt 2018 CIO Flash

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The haggling over Italy's budget continues. No wonder markets are nervous.

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A closer look at the U.S. yield curve, nine years into the economic cycle

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21. Sep 2018 Chart of the week

The troubles in markets did not start with Lehman Brothers

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07. Sep 2018 Chart of the week

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12. Okt 2018 Letter to investors

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12. Okt 2018 Fixed Income

Credit, what else?

We see selective opportunities in emerging markets.

12. Okt 2018 Macro

So far, so good.

Conventional analysis paints a soothing picture of the global economic outlook.

12. Okt 2018 Focus

Casualties of trade conflicts

How emerging markets became early victims of the simmering global trade war.

12. Okt 2018 Performance

Performance

All performance at a glance

02. Nov 2018 Investment Traffic Lights

Investment Traffic Lights

Our tactical and strategic view

02. Nov 2018 Chart of the week

Why the trend of rising U.S. yields might soften from here

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26. Okt 2018 Chart of the week

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25. Okt 2018 Equities

U.S. equities under pressure

The correction looks overdone, but we expect market volatility to persist.

CIO View

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