Back To German Watch?

The NASDAQ teeters on the precipice of breaking even after 15 years, and the German 10-year yield sneaks a surprise attack on the bond market.

Stocks were quiet yesterday, but the bond market fell under a surprise attack. The 30-year bond fell almost two full points, And the sell-off was not limited to the 30-year; it spread across the yield curve. The culprit? The German bond, which was once the bond market’s best friend.

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Over the past few days, the German 10-year yield has doubled from 0.055% to 0.105%. Yesterday’s pop to 0.16% set off alarm bells in trading rooms, and interest rates tripled in Germany.

Yes, the yield only went from microscopic to barely-visible-with-the-naked-eye, but bond traders are easily spooked. Bond prices are higher this morning as the German 10-year note yield has retreated to 0.136%. After months of slavishly following the German 10-year bond lower in yield, U.S. bond traders finally shook off that obsession when the German yield went into the twilight zone. I hope yesterday wasn’t an omen that U.S. traders will start watching the German yield move on the upside.

Continue reading about stocks, jobless claims, and existing home sales.

Dwight Johnston is the chief economist of the California and Nevada Credit Union Leagues and president of Dwight Johnston Economics. He is the author of a popular commentary site and is a frequent speaker at credit union board planning sessions and industry conferences.

April 23, 2015

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