The yield on the German 10-year bond fell below 1% for the first time in history.
This bond rally (yields fall when bond prices rise) occurred shortly after we learned that real GDP contracted by 0.2% in in Q2, down from +0.7% in Q1.
Economists were forecasting a more modest 0.1% decline.
“The German economy hit a wall in the second quarter,” said Pantheon Macroeconomics’ Claus Vistesen.
Low yields in Europe remind us that the current 2.4% yield on the 10-year U.S. Treasury note is actually relatively high. In other words, those European bonds actually make U.S. bonds look cheap, meaning that yields have room to go lower.
“It’s really hard for me to identify why rates should go higher,” said DoubleLine Funds’ Jeffrey Gundlach about U.S. Treasuries.
Gundlach said that we could see U.S. Treasury yields rise if European yields were to rally. However, he reminded us that wasn’t likely to happen any time soon.
Here’s a three-year look at the German 10-year yield.
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