Tonight I am including charts of the U.S / German two -
year yield differentials.
Not exact matches
Over the past
year, the bond
yield curve has been positive but flattening (short - term
yields remained lower than long - term
yields, but the
differential has narrowed).
In early August,
yields on 10 -
year bonds were around 75 basis points above the cash rate, slightly less than the average
differential since the mid 1990s (Graph 66).
The more general forces that have influenced the exchange rate over the past
year or so have been the relative strength of the Australian economy, the associated
yield differential in favour of Australian dollar assets, and the continued improvement in Australia's terms of trade, which are now at their highest level in more than 25
years.
The BOJ's decision to anchor 10 -
year Japanese government bond (JGB)
yields around zero has led to a yawning
differential with 10 -
year Treasury
yields.
In other words, the «dividend
yield — 2
year Treasury
yield»
differential has almost no impact on the medium - long term direction of the U.S. stock market!