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Mind the (US-Germany yield) gap

Key points

  1. We see the yield spread between US and German bonds modestly widening on US economic outperformance and policy divergence.
  2. Technology stocks led global equities down. The Indonesian rupiah and South African rand joined the emerging market (EM) currency rout.
  3. This week’s US retail sales data could confirm robust economic growth momentum in the US.

Mind the (US-Germany yield) gap

The gap between the 10-year yields of US and German government bonds has steadied at elevated levels after a long period of widening. We see room for modest widening of this spread, a barometer of the relative long-term growth outlook and interest rate expectations in the two economies. Why? We see better long-term growth prospects and a faster pace of monetary policy normalisation in the US.

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