A bund is a German 10-year government bond. German yields have recently become disconnected from those in the US. Why is this happening? I presume it is because the Greek crisis has raised the demand for safe-haven assets among euro-based investors, at the same time as improving growth figures and the end of QE policies have pushed up bond yields in the US. My thought is that this can’t go on for ever — switching from the PIGS into German bonds has to end when there is enough of a yield premium for holding dodgier debt. And people who buy bunds will swich to Treasuries when there is enough of a premium available; Treasuries are trading at almost 4% and bunds at 3.14%. The bund yield’s upside breakout from a triangle, a strong technical signal, seems to confirm that bund investors are noticing the attractiveness of other assets. The failed downside breakout a couple of weeks ago (below 3.1%) would seem to limit how far bund yields can fall. Charts from IG Index and Bloomberg.

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