Saxo Bank chief economist Steen Jakobsen points out the 10-Year US treasury note is the cheapest 10-year government bond in the G7, with the interest rate spread near a record high.

Spread of US 10-Year Note Yield vs. G7 Average Yield

click on chart for sharper image

Via email Steen says …

US 10 Year cheapest in G-7! This is one of the reasons for my change to US fixed income and short US Dollar.

US 10 Year spread vs. G-7 equivalent now at 79 bps – close to all time high. As the chart indicates there is considerable mean-reversion in this data series.

The market is long, very long the US dollar into ECB and FOMC meetings where consensus quietly is looking for 10 bps cut by the ECB, maybe even announcement of “private” ABS [Asset Backed Securities]. In the US the regional banks want the discount rate normalized, but reality is close by.

I remain long US fixed income – and will add on any sell off. Long investors could use IEF.


IEF is the Barclays 7-10 Year Duration Bond Fund.


The 10-Year Treasury currently yields 2.37%. For the spread to be +0.79%, the G-7 average 10-Year yield is 1.58%.

$USD – US Dollar Index

US dollar has been rising in belief Fed tapering will complete and rate hike will follow. Meanwhile, the consensus bet is that rate cuts will take place in Europe.

Are rate hikes that will not happen priced into the US dollar ? I believe so and that is what Steen believes as well.

Mike “Mish” Shedlock