Investors buy Europe as US stalls
Please consider Resilience in the euro zone on Reuters.com
It seems investors have decided that they will forget the Euro Debt Crisis, or are they forced to do so? Europe is gaining strength as GDP has started growing at pre-crisis rate and leading the euro resurgence is the biggest economy of Europe itself, Germany.
More leading indicators on the euro zone manufacturing sector and German business morale, due in the coming week, could accelerate this trend, at a time when investors are increasingly worried about the U.S. economy’s worsening prospects.
According to Reuters, "Year to date, European stocks, measured by the FTSEuro 300 index .FTEU3, have fallen around 1 percent, outperforming the S&P 500 index which dropped 3.5 percent and the MSCI world equity index .MIWD00000PUS which lost nearly 5 percent. In the credit market however, euro zone assets have a lot of catching up to do, especially in the high-yield space. Total return on euro high-yield corporate paper, rated BB, stood at 4.3 percent, according to BofA Merrill data. This compares with 5 percent for similarly-rated U.S. bonds."
Investors have been pushing back the timing of the next interest rate hike by the Federal Reserve after the central bank decided earlier this month to buy more government debt with the cash from maturing mortgage bonds. They expect the Fed to leave interest rates on hold until mid-2011.
"Recent correlations suggest that rate spreads are becoming more important, overtaking risk appetite, while the sensitivity to peripheral euro area concerns are waning. On balance, we would expect such a shift to favor gains in the euro," Deutsche said.
2-Year Bond Yield of US Treasury Note is at all time low and 10-Year Yield have fallen recently. Investors are jittery about US recovery and see deflation ahead. Yields of 2 Year and 10 Year bonds have flattened and narrowed in recent past. Historically, this type of behaviour of Yield Curves has been evident before the recession setting in.