Bond yields: together but apart

10-year government bond yields

Bond investors generally like to ride a trend towards convergence, such as when the spread of Spanish and Italian sovereign debt narrowed sharply relative to German bunds following the eurozone crisis subsiding after the summer of 2012. But divergence trades can also be profitable. We believe the relative performance of the US and European economies has presented such an opportunity.

“Though the official policy stance and rhetoric from both central banks remains “lower for longer”, markets are unconvinced. Benchmark yields on a swathe of European government bonds, from German bunds, to French OATs and Spanish bonos, have been falling to new lows. Five-year US Treasury yields, by contrast, have more than doubled since 2012.

Gareth Colesmith, Insight Investment

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