Interest rates are one of the important factors that are considered in the financial decisions and the yield curve is used to determine the trend of economy. However, the most interesting are the opposite interpretations of the similar movements in the different bond markets.
It is a wonder, that an increase in the US long term sovereign bond yields is treated as a sign of the higher demand for private sector's borrowing and expectations with the economy recovery. While politicians agreed with the extension of the US Bush tax cuts that should support the business development, the government needs to prepare and implement more robust budget deficit reduction plans as smaller taxes may lead to lower budget incomes and even higher debt burden.
In comparison, the increase in the eurozone “peripheral” yields is associated with the risk of the default and higher risk premium that investors demand. So, if different term interest rates for the European sovereign bonds become wider, could it be treated as a sign of the European economy growth?
By the way, if investors expect that the increase in bond yields and cash flows’ spread into equity markets will prevail; it may be a good time for corporations to consider deleveraging strategies.
About Me
- Asta Pravilonytė
- Every manager can call him or herself a good strategist if he or she only works within an environment that is favorable; however, it is only in times of stress that one truly learns what one's capabilities are!
English please...I'm not sure comparing Euro interest rate demands to what it will take to spur economic growth in the US is relative. What ever happens in Euro.. is..what ever happens. As far as how we, the US should proceed, let's try one thing at a time. At this stage of the fiasco, we need real answers. If the US rates stay where they are while we just cut spending, there will be tax revenue for politicians to argue over where the surplus should be allocated. If the US economy begins to giddy up...with just that move, everyone wins. Who knows, it just may be enough to argue we can afford to pay up a bit if there is control on spending. But let's try it first. We've already wasted this much time, let's be smart for a change and get it right!! As for the Euro and Europe.. toast!
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