CROSS-SECTORSECTOR COMMENT 19 MAY 2015ANALYST CONTACTSBenjamin S. Garber 212-553-4732 Asst Dir-Economist benjamin.garber@moodys.comABOUT CAPITAL MARKETS RESEARCHAnalyses from Moodys Capital Markets Research, Inc. (CMR) focus on explaining signals from the credit and equity markets. The publications address whether market signals, in the opinion of the groups analysts, accurately reflect the risks and investment opportunities associated with issuers and sectors. CMR research thus complements the fundamentally-oriented research offered by Moodys Investors Service (MIS), the rating agency.CMR is part of Moodys Analytics, which is one of the two operating businesses of Moodys Corporation. Moodys Analytics (including CMR) is legally and organizationally separated from Moodys Investors Service and operates on an arms length basis from the ratings business. CMR does not provide investment advisory services or products.View the CMR FAQ Contact the CMR team Follow us on TwitterMoodys Analytics markets and distributes all Moodys Capital Markets Research, Inc. materials. Moodys Capital Markets Research, Inc. is a subsidiary of Moodys Corporation. Moodys Analytics does not provide investment advisory services or products. For further detail, please see the last page.Market CommentThe Wrong Way One-Way Euro Bond Bet Defying deeply held market expectations, yields on euro-denominated debt shot higher in recent weeks as the euro currency strengthened sharply against the US dollar. The belief that ECB quantitative easing assured steady interest rate declines was shattered as improved economic data fed a violent market unwind. While negative short-term rates still point to a long period of policy accommodation, a jump in long rates reflects hope that Europe is not headed for endless stagnation and deflation.MOODY'S ANALYTICS CROSS-SECTOR2 19 MAY 2015 MARKET COMMENT : THE WRONG WAY ONE-WAY EURO BOND BETEuro yields remain remarkably low The announcement and implementation of expanded quantitative easing by the ECB this year underpinned a predictable rally in Eurozone credit through late April. Then in a matter of days, rates on benchmark euro-denominated debt completely undid the declines seen over the prior five months (Figure 1). The 10-year German Bund yield rose from a record low of 0.08% on April 20 to close at 0.72% on May 13. Longer-term debt experienced an even larger rate jump with the yield on the 30-year Bund rising from 0.47% to 1.40% over the same time frame. A series of positive euro-area economic data reports provided the fuel for the debt market sell-off, while statements from major asset managers about the short potential for German debt provided the ignition. Even these market wizards appeared to be caught off-guard by how fast the debt market rout unfolded.Despite the spike in euro interest rates, yields remain exceptionally low. As of May 13, yields on German Bunds with maturities up to three years are s...
