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28 Mar 2013
Forex Flash: Cypriot/Italian tensions have iron jawed European yields - BBH
FXstreet.com (Barcelona) - Brown Brothers Harriman analysts note that the combination of the heightened tensions due to Cyprus and the unresolved Italian political situation has widened the iron jaw in Europe's rates.
They see that German bund yields fell, with the 10-year recording its lowest yield since early last August, and Italian yields are approaching their highest level since the start of the month, up more than 30 bp this week. They see that the widening premium throughout the periphery may be an issue for the ECB as Draghi has interpreted this in the past to be a breakdown of the transmission mechanism of monetary policy. They write, “We have argued that breakdown is due to the recycling mechanism by which creditors' surpluses were used to finance the deficit countries.”
They see that German bund yields fell, with the 10-year recording its lowest yield since early last August, and Italian yields are approaching their highest level since the start of the month, up more than 30 bp this week. They see that the widening premium throughout the periphery may be an issue for the ECB as Draghi has interpreted this in the past to be a breakdown of the transmission mechanism of monetary policy. They write, “We have argued that breakdown is due to the recycling mechanism by which creditors' surpluses were used to finance the deficit countries.”