The resulting collapse in US\nTreasury yields is spectacular on any measure. We believe investors have not\nhad time to absorb that this is the death of one of the most popular carry\ntrades globally \u2013 that is, borrowing at negative interest rates (i.e., -0.50%)\nin the euro exchange rate (EUR) to buy U.S. assets, specifically the NASDAQ-100\nIndex. This is known as the \u201cUS Exceptionalism trade.\u201d <\/p>\n\n\n\n
The short EUR\/USD position is\nnot tourism; it is structural and deeply embedded in the market. It has been\nused either as a yield enhancement on European asset longs or to fund risk\nasset purchases internationally. Along the way, the volatility-adjusted carry\nin EUR\/USD has been the best in G10, and the most liquid asset. With the Fed\npotentially cutting interest rates down to the Effective Lower Bound (ELB), the\ncall has already started for a move in EUR\/USD to between 1.17-1.24. As a\nresult of the volatility-adjusted carry collapsing, a key structural buyer of\nUS equities is missing.<\/strong><\/p>\n\n\n\n Secondly, US corporations are hesitant to increase their buyback strength at lower stock prices like in the past. Why? Because they do not know the current impact of the coronavirus relative to their cash flow needs and balance sheet, and whether or not they will be able to raise debt financing to fund the buybacks. After all, the market of investment-grade corporate credit primary issuance has been shut for the last weeks except for one day. <\/p>\n\n\n\n Collectively, the two strongest-handed buyers of stock\nmarket weakness are currently absent, or much less involved than normal.<\/p>\n","protected":false},"excerpt":{"rendered":" The resulting collapse in US Treasury yields is spectacular on any measure. We believe investors have not had time to absorb that this is the death of one of the most popular carry trades globally.<\/p>\n","protected":false},"author":133,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[5,15,18,6,8,9,26,3],"tags":[3121,191,778,4232,186],"contributors-categories":[13621],"class_list":{"0":"post-37496","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-europe-middle-east-africa","7":"category-fixed-income","8":"category-macro","9":"category-north-america","10":"category-region","11":"category-securities","12":"category-text-articles","13":"category-traders-insight","14":"tag-buy-the-dip","15":"tag-eur","16":"tag-nasdaq","17":"tag-treasury-yields","18":"tag-usd","19":"contributors-categories-rareview-macro"},"pp_statuses_selecting_workflow":false,"pp_workflow_action":"current","pp_status_selection":"publish","acf":[],"yoast_head":"\n