2024-05-26 12:24:53 ET
Summary
- The inverted Bund yields continued this week with the negative 2-year/10-year yield spread at negative 50.5 basis points compared to negative 46.9 basis points last week.
- As a result, today’s simulation shows that the probability of negative spreads in the 91-day period ending November 22, 2024 has moved to 74.6% from 70.8% in the prior week.
- That means the probability that the inverted Bund yield curve ends by November 22, 2024 is 25.4% versus 29.2% 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 1.0648 and a standard deviation of 0.0952 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:
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Weekly Bund Yield And FX Forecast, May 24: Forward Negative Spread Probability Up To 74.6%