Because the eurozone is where the big bond bubble lives.
Though the euro periphery is now in Convergence 2.0 mode on hopes of eMac’s vision of a more integrated ‘zone, the German 10-year is at a critical level, and yields only 63 basis points in an economy that is probably growing close to 5 percent on a nominal annual basis. It reflects a stunningly loose monetary policy and a central bank way behind the curve.
The repressed yield is technical as the German government’s new bond issuance is virtually nil as it runs a budget surplus and the dearth of bunds is exasperated by the ECB’s quantitative easing. We have referenced this as a major factor of the “steel bubble” in asset prices, the bursting of which is very stubborn.
A spike in bund yields could put further pressure on U.S. bond yields and may be the trigger for the long-awaited and ever fleeting equity market correction. Maybe.