Europe’s Sovereign Bond-Backed Securities

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The European Commission is proposing that the private sector create asset-backed securities around sovereign bonds that match the capital key.  These derivatives could allow banks (and other investors) to easily break from the home bias and diversify from their sovereign.    Opposition was immediate and it is not clear if the private sector will take up the call enthusiastically.  

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Merkel: Is She a Xi?

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China President Xi famously consolidated power in recent years and the term limit as head of state has been abolished.  Germany’s Merkel is also consolidating power for the creditors in Europe.  Here we discuss her next potential moves that involve the ECB and the EC.  

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Market Response to De-escalation of Sino-American Trade Tensions: Meh


The US dollar initially extended its recent run against the euro, yen, and sterling, as the divergence theme has re-emerged as an investor focus.  The market’s response to the agreement in principle between the US and China was mild at best, while Italian assets remain under pressure as a new government’s priorities are awaited, but the rhetoric takes a toll.   Continue reading

Dollar Surge Continues

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The US dollar impressive recover over the last few months is continuing and pullbacks are brief and shallow.  Rising US rates and policy divergence have made it increasingly expensive to be short dollars.  Yet positioning adjustments seem to trail behind the price action.  

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Another deadline for NAFTA renegotiations is passing.  There still is some flexibility that might last a few more weeks.  The run-up to the 1 July Mexican election is a more important constraint.  Canada and Mexico are coordinating their negotiations, and they continue to resist US demands.   Trump may threaten to leave the agreement, but a successful conclusion could have positive spillover on other trade issues.

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