Note that even though 2yr UST yields are as low as 57 bps, the yields on 3s and 5s have come in considerably as well, the curve is steepening between 5s and 10s and 30s. 3s and 5s may be seen by investors as the new 2 yr as the move out the curve for yield in front end tenors continues.
An excess 5.6bn EUR in liquidity was the result of yesterday's 1 week full allocation repo (more was taken down by banks than rolled off from the prior week). EONIA may have seen its near term ceiling.
This helps explain the success of the recent Euro zone bond issues. The widening in the Euro zone current account deficit likely matched a widening in China's current account surplus (cause and effect) and China consequently had to recycle the surplus abroad.
Euro zone current account deficit widens in May
19 Jul, 2010 @ 04:06 am BST | written by ecPulse.com
Euro zone current account seasonally adjusted showed a winded deficit in May to 5.8 billion euros compared with the prior deficit of 5.1 billion euros which was revised to 5.6 billion euros.
The non-seasonally-adjusted reading also showed a widened deficit to 16.7 billion euros from 6.9 billion euros, revised downwards to 7.5 billion euros.
Makes me believe exports to the US are slowing down, or that he anticipates China will be getting less long US dollars going forward (less exports and RMB appreciation) so current reserves are excessive in anticipation of this decline.
This mornings WSJ article probably aided the bid in EUR from the lows:
WSJ: Former PBOC Adviser: China Should Reduce Dollar Assets In FX Reserves DOW JONES NEWSWIRES
China should reduce the amount of U.S. dollar-denominated assets in its foreign exchange reserves in favor of those denominated in other currencies or other types of assets, former People's Bank of China adviser Yu Yongding wrote in an article published in the state-run China Securities Journal on Monday.
China doesn't disclose detailed information about the composition of its foreign-exchange reserves--at nearly $2.5 trillion, the world's biggest--but economists have estimated 65%-70% of the reserves are invested in U.S. dollar- denominated assets, mostly U.S. Treasurys.
As excess liquidity is no longer needed, EONIA should converge back to the refi rate of 100 bps. The rates you display show that this is occurring. This would be normal and healthy. Excess liquidity is what will push rates lower. Excess liquidity isn't necessarily needed, but in situations of no transparency and high uncertainty, it will be demanded. But all one has to do is see how much is deposited back at the ECB to see that there is excess liquidity. Banks will only be willing to incur that negative 75 bps of carry for so long. That is why EUR rallied when less EUR needed to be rolled upon the expiration of the 12 month repo a few weeks ago.
Every sovereign does this perpetual rebalancing, which is really intervention, though some are clearly more concentrated and direct bouts (i.e. recent SNB). Think of sovereigns managing foreign reserves no differently than fund managers who track indicies.
Try publishing this in the UK weekend papers: Traders bet BankofEngland will raise rates to 6.25% --highest since 1… https://t.co/GWXrTEAk4R(11 months ago)
Poor start to a slow market day as Ezone PMIs disappoint. Im still keeping an eye on the rare (-2%) USD-GOLD combo,… https://t.co/UyRzWsRbs7(11 months ago)
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ما وراء هبوط الدولار مع الذهب و من منهما يتمكن الارتداد؟
موعدنا الآن في غرفة شركة إكس أم لجلسة الأسواق
https://t.co/Y7tD0RxCS2
@XM_COM (11 months ago)
Jobless claims > 300k before next FOMC meeting would be ideal for Fed to make up for any CPI upside surprise (11 months ago)
"Cook & Eat at Home" scheme may come next to defeat UK inflation... (11 months ago)
Earlier in the week gold selloff was attributed to smaller than exp China EASING. Metal is now holding v well despi… https://t.co/ZW9cmXTPWW(11 months ago)
Euro zone current account deficit widens in May
19 Jul, 2010 @ 04:06 am BST | written by ecPulse.com
Euro zone current account seasonally adjusted showed a winded deficit in May to 5.8 billion euros compared with the prior deficit of 5.1 billion euros which was revised to 5.6 billion euros.
The non-seasonally-adjusted reading also showed a widened deficit to 16.7 billion euros from 6.9 billion euros, revised downwards to 7.5 billion euros.
WSJ: Former PBOC Adviser: China Should Reduce Dollar Assets In FX Reserves
DOW JONES NEWSWIRES
China should reduce the amount of U.S. dollar-denominated assets in its
foreign exchange reserves in favor of those denominated in other currencies or
other types of assets, former People's Bank of China adviser Yu Yongding wrote
in an article published in the state-run China Securities Journal on Monday.
China doesn't disclose detailed information about the composition of its
foreign-exchange reserves--at nearly $2.5 trillion, the world's biggest--but
economists have estimated 65%-70% of the reserves are invested in U.S. dollar-
denominated assets, mostly U.S. Treasurys.
...