ULE - Weekly Bund Yield And FX Forecast June 21 2024: Short End Down Long End Up
2024-06-24 06:07:19 ET
Summary
- The inverted Bund yields continued this week with the negative 2-year/10-year yield spread at negative 37.4 basis points compared to negative 39.2 basis points last week.
- As a result, today’s simulation shows that the probability of negative spreads in the 91-day period ending December 20, 2024 has moved to 65.0% from 63.8% in the prior week.
- That means the probability that the inverted Bund yield curve ends by December 20, 2024 is 35.0% versus 36.2% last week.
- The most likely one percent ranges for the 3-month yield (zero to 1%) and 10-year yield (1% to 2%) in 10 years are unchanged this week.
- The simulation with U.S. Treasuries shows a Euro/U.S. Dollar exchange rate at a median value of 1.0540 and a standard deviation of 0.0941 one year forward.
Author's Note: This simulation has been done jointly with a U.S. Treasury yield simulation in a way that reflects the correlation among the 12 factors driving yields in each country. For more on the companion U.S. Treasury simulation, please contact the author. Both the Bund and the U.S. Treasury yield simulations impact foreign exchange rates, resulting in the following distribution of the Euro/U.S. dollar exchange rate one year forward:
Pricing for short- and long-dated options to buy Euros versus U.S. dollars at a strike price of 1.07 for quarterly maturities out to 30 years is given below:
Weekly Bund Yield And FX Forecast, June 21, 2024: Short End Down, Long End Up