A strange story is unfolding in Europe as the UK yield curve flattens while Germany’s steepens


The front-end of yield curves are rising globally, as central banks react to stubbornly high inflation by raising interest rates and promising more action to come.

But a key difference is emerging in the bond market. In the UK, the yield curve is flattening, while in Germany it is steepening.

“Typically, a steeper yield curve means ‘good bulls’ or the central bank is heading for a strong, reflationary economy. Flattening means the market doesn’t think the bulls will stick and it’s more likely that the central bank is getting weaker,” says Brett Donnelly, President of Spectra Markets.

He says the trend should be bullish for the Euro against the EURGBP Pound,
as the common currency has generally climbed since 2015 when the German curve steepened relative to the UK curve. He says the chart of the euro against the pound has “a lot of free air” above the 200-day average of 0.8511. Donnelly said the March calls are a way to play, given that it’s the Friday after the next Bank of England and Federal Open Market Committee meeting.

On the stock exchange, the shares of the airport services company John Menzies MNZS,
jumped 34% to 449 pence after rejecting its second takeover of National Aviation Services, a unit of Kuwait’s Agility Public Warehousing Company.

John Menzies, which operates at more than 200 airports in 37 countries, said it rejected a cash offer of 510 pence per share, having previously rejected an offer worth 460 pence per share. That would value the business at £469 million ($635 million).

John Menzies called the offer “very opportunistic” as its valuation and underlying volumes have not returned to pre-pandemic levels.

The FTSE 100 UKX index,
gained 0.8% in afternoon trading to 7630.05. The takeover affects in particular International Airlines Group IAG,
and Compass Group CPG,
advanced, while GlaxoSmithKline GSK,
slightly lower by 2% after its fourth quarter results.


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