We look at price movements, yield spreads
, and trading volume in the cash market.
Greek yield spreads
(with Germany) rose sharply last week, Portuguese yields have turned higher, and the Spanish spread has also started to widen.
However, with GDP projections now positive and with investors appetite for risk returning we will see yield spreads
narrowing over a sustained period which will result in secondary assets performing better on a total return basis.
Greece sold six-month T-bills at a slightly higher yield on Tuesday than a previous February auction, its first borrowing sortie after a three-notch Moody's downgrade to B1 raised yield spreads
to near peak crisis levels.
An important research question examined in the credit risk literature focuses on the proportion of corporate yield spreads
attributed to default risk.
The level of the yield spreads
and changes in these levels were the primary concern.
WHAT ARE YIELD SPREADS
AND MIGHT THEY TRACK MARKET INFLATION EXPECTATIONS?
Key factors in this optimistic outlook include strong demand against limited supply and tightening yield spreads
in other asset types, both set against the backdrop of a solid economy.
However, foreign investors buy the bonds and then cash in on yield spreads
to make a profit.
Inter-Bank Market Rates: In the final Asian trade, It was hard to find a pulse in the currency market as dealers bedded down for the Christmas holidays, though the mood remains bullish for more dollar gains in the New Year as yield spreads
widen in its favour.
Summary: Shrinking liquidity and widening yield spreads
could dampen demand