An interesting tweet from PIMCO just now:
What’s he talking about? Well normally on a day when there’s lots of Eurozone panic, you see stocks down, peripheral yields surge, and German bunds fall. But today’s different.
Today: Not happening. In fact, German 10-year yields are up pretty big intraday (chart via Bloomberg).
There’s a few possible takeaways here.
One guess (which is always good) is that it’s just noise, and that making too much of a deal out of a one or two day move is for losers.
But it’s also possible that markets are starting to see German bonds — as one twitterer put it — as defacto Eurobonds.
If Germany is pot-commited to backstopping the debt of the entire Eurozone — as hedge funder Mark Dow suggests — then it stands to reason that Germany isn’t the perfect risk-free credit that people assume. No matter how fiscally stable it is, Germany doesn’t have its own printing press like the UK, Japan, and the US do.
There’s also precedent for being concerned.
Last ovember, when things got really hairy prior to the ECB’s 3-year LTRO announcement German yields started to rise along with everyone else’s in Europe.
This chart shows German (orange line) vs. US (green line) 10-year yields. The vertical line late November shows where the correlations tarted to get a bit divorced.
Anyway, as noted above