Heavy sell-off in peripheral bonds
The risk sentiment in EUR remains limited as Greek 10-years climb to 9% for the first time since October 2013. Traders seek exit from peripheral risks and fast, as fading liquidities increase anxiety; Portugal (+50 bp), Italian (+35bp) and Spain (+20bp) 10-year yields rise significantly. The 40-day rolling correlation between Spain-German 10-year spread extends above 50%, partially explaining EUR/USD holding support even after soft CPI release yesterday. As fragmentation in the Euro-zone surge, EUR/USD increases as traders need more hint on a potential ECB QE (as support). Although the short-term bullish momentum strengthens, top seller strategies dominate pre-1.30 as the EUR-negative risks prevail. Markets are very sensible to QE-related comments as the Euro-zone recovery remains very fragile.
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