Europe Is Having the Right Sort of Bond Rout
As Germany gets ready to borrow and spend big, there’s little to fear from a selloff that shows Europe is finally helping itself.
A broad selloff started in Germany, which is leading the charge on boosting Europe’s defense.
Photographer: Iona Dutz/BloombergEuro-area bond yields inevitably leapt like a salmon as Germany unleashed a fiscal bazooka, but compared to previous fixed-income tantrums, it’s not the stuff of all-night summits.
What's key is what the bond rout isn’t: A reaction to fears that one or more countries is coming under financial stress. It’s a broad selloff that started in Germany and swept through the rest of the euro zone — and then spread to Asia — almost indiscriminately. It's extraordinary for US yields to be lower when the entire euro yield curve has risen as much as 30 basis points. This is a genuine repricing to accommodate half a trillion euros of unexpected spending.
Peripheral nation yields are certainly rising - as Brussels has made sure they can do their bit for regional security. Importantly, though, their borrowing costs aren’t blowing out disproportionally and stirring a flight to higher-rated German debt. There's no sudden existential crisis that weaker economies can't pay their bills or borrow freely across the yield curve. Investors should happily help themselves to higher bond yields. That the euro is up more than 3% versus the dollar this year, second only to the yen among major currencies, confirms this is Europe helping itself the right way.