[DanRath]

Bloomberg reports that a number of large asset managers have said they will cut back on US and UK exposure. Today's focus is on the UK cut back; cut backs on USD holdings were yesterday's news. Overall, it is not clear whether investors are backing off because they are worried about long-term fiscal trends, because of the risk of extension of QE programs or because of the risk that stopping QE buying will lead to a sharp backing up of yields. In the UK, currency moves and interest rate differnetials have not become nearly as correlated as in the EUR/USD and US-euro zone rate differnetials, suggesting that there may be more of a risk premium components to recent UK rate moves than in the US.

By contrast, Greek spreads versus Germany are at their narrowest since early December. Since the beginning of December, the correlation of EUR/USD and German-Greek spreads has been almost as high as the correlation with German-USA spreads, so the tightening of spreads may be one element in the rebound of the EUR in recent days. There has been a similar pullback in Greek CDS today.