LONDON Aug 21 Any speculation about the timing
of a Federal Reserve rate hike at this week's central bank forum
at Jackson Hole could raise fears of a fall in demand for bonds
in the euro zone periphery, but holders should be reassured by
the weak correlation between Spanish and Italian bond yields and
their U.S. counterparts.
The annual symposium of top central bankers in Wyoming,
starting on Thursday, is always closely watched for clues about
future policy. A speech by Federal Reserve Chair Janet Yellen on
labour markets will be scoured for clues to when the Fed will
raise interest rates - a move that will have global
The Bank for International Settlements and others have
warned that heavy buying of high-yielding, low-rated bonds in
recent years may have created a bubble that could burst when
money gets more expensive.
In the euro zone, where ultra-easy monetary policy has taken
the sting out of a debt crisis, such worries are focused on
Italy and Spain, the 'too-big-to-bail' countries whose borrowing
costs have fallen sharply since 2012.
The market consensus is that a Fed rate hike will push U.S.
yields higher, but will that drag euro zone yields up with it?
Historical correlations between the two markets show German
debt has a significant sensitivity to moves in U.S. Treasuries,
while Spanish and Italian bonds are largely untroubled.
The 100-day correlation between German and U.S. 10-year
yields is a fairly strong 0.7 - where 1
is perfect correlation and 0 is none - and has hovered around
this mark all year. In Spain and Italy, the correlation barely
"If (U.S.) yields start to rise ... we can expect in an
initial phase Bund yields to rise faster than peripheral ones,"
said Gianluca Ziglio, an analyst at Sunrise Brokers.
"So for every 50 basis points rise in U.S. yields you might
see a 20-25 bps rise in German yields and only a 10-15 bps rise
in Italian and Spanish yields at most."
(Reporting by Marius Zaharia, graphic by Monica Ulmanu: Editing
by Will Waterman)