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German yields show EUR turning into a funding currency
FXStreet (Mumbai) - The fall in the German yields across the short-end and the long-end of the curve last week highlights that the EUR is losing appeal as a “growth or risk-on” currency and is tilting towards being a “funding” or “risk-off”currency.
The drop in the German yields in the last week showed the yield differential between the 2-year and 10-year bond yields continue to slide, thereby making it less attractive as a risk-on currency. The differential slid to 0.347% on Friday from 0.638% seen in January. Meanwhile, its attractiveness as a funding currency is on the rise since the long-end German yields continue to fall. Germany now has negative yields on bonds maturing up to 9-years.
The sharp fall in the long-end yields forces investors to pour money into higher yielding/riskier EUR-denominated assets like equities or Foreign assets.