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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: NOW who wrote (97152)4/22/2001 5:38:30 PM
From: patron_anejo_por_favor  Read Replies (2) of 436258
 
Well, the short bond would benefit from the dollar-to-Euro carry trade as the U.S to Euro short rate spread widens. But the long bond will benefit even more from the likely scenario of lower inflation in the Eurozone compared with the U.S. as long as they maintain tighter fiscal policy. For now I'd stay with the long end of the curve, and gradually move to shorter maturities as the Fed continues to cut and the spread widens. For now, you'll make money either way. The main point is that as the spreads widen, the carry trade will become more attractive and will further weaken the dollar, much like what has happened with the Yen carry trade.
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