For the third day in a row the Euro has gained against the dollar, almost completely reversing its decline last Friday. In a similar trend, the US Treasury curve continued to rally despite sideways movement in the S&P 500. Many predict a rising of yields after the Federal Reserve discontinued bond purchases last month, putting an end to QE3.
The continued rally in Treasuries might be a form of cheap protection over the long holiday weekend. That being said, with the prospect of deflation never far from the market’s mind, some have predicted that bond yields will drop further as the world economy falls into the trap that Japan has been in for over two decades: low yields, low growth, low inflation