The story of the last few weeks has been the rise in interest rates in the US and Germany.This is a sign of improving sentiment. It means that the voracious bid for save-haven assets is starting to dissipate.
But we’ve worried that people would spin this is as bad news, that bond vigilantes are coming, or that interest rates are surging because the Fed has fallen behind the curve.
And then from there we worry that if people start freaking out, we’ll get policy errors, like premature tightening.
And that seems to be happening in a weird way.
The NYT has an article titled: German Bond Prices Decline, Unsettling Confidence in a Safe Haven.
The insinuation is that: rates are rising, maybe people aren’t so confident about Germany!
In the end, the article is a little circuitous, talking about how banks might see some losses on the value of their German bund portfolios.
Let’s remember: The reason that bunds got bit up so hard, is that people got freaked out about Italy and Spain, and flocked to the one safe haven in Europe. With the peak panic having dissipated, people don’t need to be so exposed to a risk-free save haven, and that’s a good thing.
This article is worrisome, since it means that it doesn’t take long before a rise in rates is spun as a bad thing, which then causes policy errors.