Everyone continues to talk about when the Fed will "raise rates." The interesting fact is that the market is unwilling or unable to raise rates despite the heavy Fed-timing focus. A few years ago, Europe came to the harsh conclusion that Greece (and then every other EU country) was not Germany. This led to a blow out in spread relationships and even chatter of countries opting out of the monetary alliance.
Today the German government term looks like this: 2 year -.03, 5 yr .18 and Bund .94. These rates have pushed peripheral Europe borrowing costs back down to historical lows. The Spanish 10 year is floating around 2.28, or 10bp UNDER the US. Thus, although a wide spread still exists between Germany and the "others" (we're an "other" now) the rates are inordinately low and still falling.
So, why is the topic still, "When will the Fed raise - the anchor - rate?" Forward guidance has crafted a tight relationship between out years in Eurodollars. Flat curves are only visible inside the country. The new wides between the US and Germany indicate stress beyond the calibration of monetary policies. As we saw here in Napa, when the stress builds up, things begin to shake.