German Bond Selloff Spills Into U.S.
Ed Yardeni | May 04, 2015 12:08AM ET
In recent days, there have been lots of mixed and confusing signals coming out of the Eurozone and US economies, and investors have acted accordingly. On Friday, May Day was a happy day for stock investors as they merrily danced around the maypole. The day before, they all seemed to run for cover. The S&P 500 fell 1.1% on Thursday and rose 1.1% on Friday to 2108.29, just 0.4% below the record high of 2117.60 on April 24. It’s been range-bound since the start of the year.
For bond investors, it was “Mayday! Mayday! Mayday!” every day last week. The 10-Year US Treasury yield rose to 2.12% on Friday from 1.93% the week before despite a weaker-than-expected GDP report and a relatively benign FOMC statement on Wednesday.
US yields rose in reaction to the rise in the German government’s 10-Year bond yield from this year’s record low of 0.033% on April 17 to 0.37% on Thursday, just before much of continental Europe took Friday off for May Day. Germany’s economic indicators have been showing some strength, and deflationary fears seem to be subsiding. On Thursday, we learned that the Eurozone’s CPI was unchanged during April on a y/y basis as energy prices rebounded. It hit a recent low of -0.6% during January when oil prices were finding a bottom. No one seemed to care that the core CPI rose just 0.6% y/y during April, the same as the month before.
Furthermore, the euro has rebounded from the year’s low of $1.05 on March 13 to $1.12 on Friday, suggesting that Eurozone investors may be losing their interest in US bonds, even though US bonds still yield much more than German bonds. The stronger euro caused the EMU MSCI to sag by 2.8% last week, but rise 0.4% in dollar terms.
Today's Morning Briefing: Mixed Signals. (1) May Day vs. Mayday. (2) Dancing around the maypole. (3) German bond yield backup spills over into US bonds. (4) ECI showing first sign of rising wage pressures. (5) US business surveys were relatively weak in April. (6) CPI vs. PCED. (7) It all depends on FOMC’s interpretation of the data they depend on. (8) Oil exporters selling US Treasuries and other reserves. (9) First day of month often bullish for stocks. (10) Home in the range. (11) Stocks on verge of melt-up? (12) Bonds on verge of meltdown? (13) Signs of life in commodity pits. (14) “Ex Machina” (+).
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