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LONDON: The two-year US Treasury note yield premium over German equivalents rose to its highest in seven years on Thursday with expectations the European Central Bank will ease policy later in thee day supporting German bonds' outperformance.
The two-year yield gap between the US and Germany - the euro zone benchmark issuer - has expanded over the past months, as the ECB primed the market for aggressive monetary policy measures to stave off deflation while the US Federal Reserve was trimming its monetary stimulus.
The premium hit just over 35 basis points, its widest since mid-2007.
"People are generally long Europe versus the US and even UK gilts on diverging central bank policies.
It's been a very popular trade," one trader said.
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