Extremely interesting... what do you think?
Deutsche Bank - "(1) Markets are not long US treasuries; the Fed is long treasuries
(2) Markets are long cash and spread products: anything offering a yield over risk-free rates (corporate,EM bonds)
(3) Markets are underweight equities, particularly in developed markets
Leading to the following implications:
(1) The sell-off in US treasuries (rise in yields) can be orderly
(2) Equities can perform well, particularly in developed markets
(3) Credit could struggle, and swap spreads should widen as corporates switch to fixed from floating-rate funding
What does this mean for FX?
(...) First, the EUR should outperform in the initial stages of the "rotation". The sovereign crisis has mostly involved intra-Eurozone capital flight, but the last three years have seen leakage to safe-havens. Some crosses such as EUR/GBP have already recovered most of their pre-2010 losses. But the years of broad-based EUR weakness are over.
Second, FX drivers should become more idiosyncratic. Lower global tail risk means that both policy changes and investor flows become more responsive to individual country conditions. Correlations between FX and risk appetite have already come down, and we think this is here to stay.
Third, and as a result of the above, currency investing should finally start providing returns as bottom-up analysis pays off. The start of the "Great Rotation" coincides with a cyclical trough in FX returns, suggesting we may be entering a cyclical "bull" market for currency investors."