Record US-German yield spreads high will remain for 12-18 months

The current record high in the US-German bond yields spread is unlikely to narrow in the next 12 to 18 months, according to NN Investment Partners.

NN IP analysis shows that the interest rate differential between US and German 10-year bonds is currently above 250 basis points, which is the most substantial gap for nearly 30 years.

Pieter Jansen, Senior Strategist Multi-Asset, NN Investment Partners, commented: “It is hard to see how this situation will change in the months ahead. The monetary policy cycle continues to diverge. The ECB won’t hike for at least a year, while the Fed continues in its rate hike cycle. In our view, the market still has potential to reprice Fed hikes further, especially for 2019.

“The gap will likely narrow when the ECB has a faster rate of monetary normalisation than the Fed, i.e. when the Fed starts to slow or pause interest rate hikes and the ECB gets into the swing of rate hikes. This is unlikely to happen in the coming 12 to 18 months.”