It is noteworthy to observe how as U.S. high quality bond yields spike higher, sovereign bond yields are also pressing higher throughout the Eurozone. While this may not initially appear to be too surprising, the big difference between the U.S. and Eurozone situations is that as longer duration European yields grind higher, the shorter duration European note yields are moving deeper into negative nominal interest rate territory. Case-in-point: German sovereign 2-year note yields recently hit a new all-time low of -0.78% while the yield on the 10-year Bund has simultaneously reached a multi-month high of 0.35%. For comparison, the U.S. 10-year Treasury note currently yields 2.39% and the 2-year yields 1.11%.
Global Sovereign Bond Yields
Diverging short-term/intermediate-term European sovereign note yields are not exclusive to Germany. The 10-year note in France currently yields 0.75% while the 2-year stands at -0.65%, the Italian 10-year yields 1.98% compared to the 2-year at 0.05%, and in Spain the 10-year has escalated to 1.54% while the 2-year remains deeply entrenched in negative yields at -0.13%.
SPIAS interprets these apparent divergences as evidence that investors are starting to sense that massive monetary accommodation by the European Central Bank (ECB) has recently been gaining traction within the underlying economies, but not to the extent that additional stimulu