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China pledges to keep yuan exchange rate basically stable, easing market fears over competitive devaluation: Scotiabank

Canadian manufacturing sales likely to have contracted in June

Polish wage growth likely rebounded in July, industrial production to have grown strongly

University of Michigan sentiment index falls in early August

FxWirePro: Asian markets start a new week on higher note, gold trades flat at $1,508 mark

U.S. housing starts fall in July, tight labor market and rising wages likely to support housing market activity

JGBs mixed after July trade balance shrinks into deficit; national CPI data in focus

Turkish industrial production falls year-on-year in June

U.S. Treasury yields slightly recover on stabilising risk sentiments overnight; uncertainties still hover

Persistent trade-tensions likely to cap the upside on overall investment activity in Malaysia, says ANZ Research

Australian 10-year bond yield hits record low on signals of nearing global recession

Russian manufacturing decelerates in July, economy likely to grow 1.5 pct in 2019

Swedish home prices remain stable in July, likely to stay stable ahead

FxWirePro: Asian markets mixed, gold hovers around $1,520 mark

Australian bonds slump in muted trading ahead of RBA’s August monetary policy meeting minutes

Fed likely to deliver 25bp cut at each of the next five meetings, says Danske Bank

JGBs jump on fears of global economic downturn; BoJ likely to ease further

EconoTimes

Fundamental Evaluation Series

Fundamental Evaluation Series: USD/CHF vs. yield divergence

Thursday, August 17, 2017 8:50 AM UTC
0
comments

During our evaluation period beginning 2012, the yield spread between the US 2-year bond and a Swiss equivalent has widened by almost 200 basis points but the exchange rate hasn’t followed through as much as it should have been as it benefits from risk aversion inflows. Swiss franc remains the most overvalued currency against the dollar, in terms of yield divergence.

  • In recent days, Swiss franc’s correlation with the 2-year yield spread (US-Swiss 2 year) has fallen to negative 16 percent, though, at times, it has shown relatively high positive correlation, as high as 90 percent. Just before and after the Brexit referendum in the UK, the 20-day rolling correlation was averaging above 60. Hence, it is vital to keep a watch on the Swiss yields.
  • Just after the Swiss floor shock in January 2015 when the Swiss National Bank (SNB) removed a floor in EUR/CHF at 1.20 this relation went to negative and stayed there until October with an occasional bounce to positive territory. It hasn’t gone much to the negative since, until recently.
  • Unlike the euro or the pound, the Swiss franc is considered a safe haven currency; hence the yield relation sometimes gets overlooked. However, Swiss yields are a must watch as they are the lowest for any government bonds in the world and any shift in that will mark a major turnaround in trend.

Since our last review, back in July, there have been minor changes in the spread which is currently at 215 basis points in favor of the dollar. The spread has narrowed by 4 basis points in favor of the Swiss franc since the last review and the franc strengthened by 30 pips and trading at 0.965 per dollar. The 20-day correlation between the exchange rate and yield spread has recovered from negative to positive.

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Economics Monitor

July 2 15:00 UTC Released

DKCurrency Reserves

Actual

449.6 Stale

Forecast

Previous

451.7 Stale

July 2 13:45 UTC Released

USISM NY Biz Conditions

Actual

50 %

Forecast

Previous

48.6 %

January 31 00:00 UTC 815114815114m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

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Bln AR bln ARS

January 31 00:00 UTC 815114815114m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 22 19:00 UTC 826934826934m

ARTrade Balance

Actual

Forecast

Previous

-1541 %

January 31 00:00 UTC 815114815114m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 22 19:00 UTC 826934826934m

ARTrade Balance

Actual

Forecast

Previous

-1541 %

January 31 00:00 UTC 815114815114m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 815114815114m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

January 31 00:00 UTC 815114815114m

ARAnnual Primary Balance*

Actual

Forecast

2016 bln ARS

Previous

Bln AR bln ARS

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