Europe: Is the herd bond trade unravelling?


Yesterday we wrote about our concerns re Europe and the optimistic view that all euro sovereign bond yields should trend down as if we were on the road to Japan. We didn’t have to wait long to witness investor pain…..

Peripheral sovereign bond yields are now rising as the US 10 year Treasury yield goes below 2% and German bond yields creep towards 1.8%. A commentary from Seeking Alpha captures the situation best…

  • In what may go down as one of the more notorious cases of herd behavior ever, traders have been buying the government paper of Europe’s periphery with the same fervor as that of the core. That’s changing today, and Italian and Spanish sovereign yields are on the riseas those in Germany tumble to new record lows.

Greek bond yields have jumped 80bps today as its stock market craters 10% and we just might be into a new phase of the euro grand plan….as per our thoughts yesterday:

Germany might enjoy low bond yields for the foreseeable future but there appears to be far too much “certainty” attached to other sovereign debt yields in the event of EU political instability. That’s not Japan, that’s chaos.



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