the rebound in the EUR/USD is at odds with the further sell-off in equities and the rise in Spanish and Italian bond yields. It appears that even though European Finance Ministers met today to talk about Spain’s bank bailout program and to hash out the details on some of the decisions made at the EU Summit, euro traders have completely taken their eyes off European bond yields. In our opinion, this is a dangerous mistake because rising borrowing costs is the source of Europe’s problems.
The recent interest rate cut by the ECB should have driven all European bond yields lower and while German yields responded accordingly, the move by the ECB did not bring much relief to the countries that need it the most.
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