Analysts expect a continued dollar-centric market where most G10 currencies move in tandem against the dollar, keeping dollar correlations high. However, they are bearish on cross-correlations (e.g., involving Sterling and Euro), anticipating greater divergence between non-dollar currencies, which presents an opportunity for investors.

While overall net government bond issuance is forecast to drop 13%, this is solely due to the U.S. When measured by duration (10-year Treasury equivalents), gross supply is actually projected to increase by 1% year-over-year. This presents a more challenging picture for markets than the headline number suggests.

Investors have been holding unhedged US dollar assets to capture both high yields and currency appreciation, a speculative strategy traditionally used for emerging market local currency bonds. This parallel indicates a shift in risk perception, where US assets are no longer seen as a pure safe haven.

Analysis reveals a consistent seasonal pattern where Euro SSA (Supranational, Sub-sovereign, and Agency) bonds modestly cheapen in December. This provides a predictable, tactical window for investors to enter or add to overweight positions ahead of the new year.

Promises of foreign investment to build factories in the US are not funded by new money. Foreign entities sell their large holdings of US Treasury bonds to raise the cash for the real investment, creating upward pressure on interest rates.

The Estet-Sofar basis is in a "tug of war." Diverging rate policies, where the market prices Fed cuts against a European Central Bank on hold, support a wider basis. However, the Fed's accommodating balance sheet policy (T-bill purchases) relative to the ECB's supports a narrower basis. This results in an expectation for the basis to remain in a tight range, albeit with a slight widening bias.

The U.S. dollar's decline is forecast to persist into H1 2026, driven by more than just policy shifts. As U.S. interest rate advantages narrow relative to the rest of the world, hedging costs for foreign investors decrease. This provides a greater incentive for investors to hedge their currency exposure, leading to increased dollar selling.

Germany's finance agency signaled it would adjust debt issuance in response to a steepening yield curve. This sensitivity acts as a structural anchor on intermediate-term yields, creating a potential outperformance opportunity for German bonds versus US and UK debt, which face greater fiscal pressures.

Historical data reveals a recurring pattern where European corporates (Yankee issuances) tend to issue more dollar-denominated debt in October and November compared to US corporates issuing in Euros. This predictable seasonality is a key factor that can influence cross-currency basis swap pricing during that period.