Week in FX Europe – Summer Doldrums Increase German Finance Costs

Do not rule out Germany paying its highest 10-year funding costs in a year and a half next week. They will be the only Euro country coming to the bond market with an issue slap bang in the middle of the Euro-annual summer holidays.

Credit rating agency Fitch reaffirmed Germany's triple-A credit status earlier this week, citing some "overachievements" by Merkel's right-wing coalition government on the fiscal front. They also happened to mention that various risks related to the Euro-zone crises directly had actually eased.

Improving Euro data has allowed their own bond yields to back up; it's now becoming more of a global phenomena. Even the Fed's plan to potentially reduce the size of its bond buying requirements (tapering) is also putting upward pressure on global bond yields. However, at the short end of most Central Banks yield curve, yields remain relatively low, supported by accommodating monetary policies being offered by most major central banks. The ECB...