The Almighty Dollar

The rebound in risk assets shows no signs of abating in February on the back of expectations that the U.S. and China will find an agreement to ease trade tensions, among others. Meanwhile, the bond market rally in Europe is bringing sovereign yields close to levels last seen in 2015-2016, when deflationary pressures were keeping central bankers awake at night. Although momentum investors have been cashing in their long European bonds exposure, we believe the opportunity set is becoming scarcer. Any positive development on the European economy might lead to a sharp correction in so-called safe assets in the region due to already very depressed expectations.