A possible return of the European debt crisis of 2011/12 dominated much of the macro talk last week.
This time, though, it is thought to be far more serious. While the first go-round 15 years ago was about the cratering of government bond markets at the so-called “periphery” of the EU, i.e. Greece, this year’s troubles are at the core — France.
The gauge to watch is the spread between France’s 10-year OATs and Germany’s 10-year Bunds. It blew out last week to levels not seen since that first EU debt crisis.
“At one point on Friday, the spread hit +160 basis points so we were on the edge of a mini panic,” said Deutsche’s Jim Reid. “The big question,” he continued, “is whether this is the start of a new euro sovereign crisis or whether markets have already overshot.”
Reid and team expect the ECB to have to relent on rate hikes, with perhaps one more 25-basis-point move, rather than the three additional hikes markets expected just days ago.
The Bund-OAT spread has narrowed by about five basis points on Monday to 140 basis points, suggesting at least some easing in pressure.
What it means for crypto: Central banks tighten until something breaks. EU debt troubles — particularly at the core — are likely to lead to easier-than-otherwise-anticipated monetary policy, not just from the ECB, but from the Fed as well. Other things being equal, easier monetary policy is good for risk assets, crypto among them.