MUFG Warns French Bond Sell-Off Weighs on Euro

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Summary · why it matters

MUFG's Lee Hardman says the euro has weakened at the start of the week as intensifying fears over destabilizing financial conditions in the euro-zone, triggered by a sharp sell-off in French government bonds, drive a broad-based softening of the single currency. The euro fell to fresh year-to-date lows overnight against the US dollar and yen at 1.1161 and 176.41 respectively. The yield spread over German Bunds has blown out to just over 140bps, almost 60bps wider than before the summer, adding to a sense of crisis in the French government bond market. The unfavourable developments have triggered fears over the re-emergence of fragmentation risks in the euro-zone that could impede the transmission of monetary policy, and market participants are watching closely for further signs of contagion after Italian government bonds were also negatively impacted at the end of last week, even at the short-end of the curve. With no easy way out in the near term, MUFG says the euro can weaken further and recommended a short EUR/JPY trade idea in its latest FX Weekly report on top of its existing long USD/SEK trade idea.

Impact on assets 3

Financials▲
Mitsubishi UFJ Financial Group, Inc.
8306
± MixedMonetaryrelevance

MUFG's Hardman is the analyst warning on euro weakness and recommending short EUR/JPY, but the news is about the euro, not MUFG's own business.

Others± Mixed