EURUSD and 2 Year Rate Differential
A comparision of the rate differential between 2 Year US Treasuries and Bunds. From June 2008 until March 2009 the spread narrowed. As this happened the euro topped out, and then declined. When that trend ended and we had a relatively flat relationship between the yields of the two, the euro began to rally. The question is how long this can continue if the spread does not begin to increase again. The rate advantage of the 2 year Bund now is scarcely 25 basis points. The last time the euro surged above 1.50, the rate advantage was well over 100 basis points and rising.
