Bonds in the Spotlight
4 Minutes
At times, US Treasury yields rose significantly. Nevertheless, the markets reacted cautiously. We take a look back – and a look forward.
Do you remember ‘Liberation Day’ in the USA, when Donald Trump’s tariffs caused turmoil on the markets? After several corrections, postponements, negotiation offers and exemptions, the bond markets managed to stabilise. Ten-year US Treasuries were recently yielding around 4.2 per cent, back to where they were at the end of March, i.e. at the same level as before Trump’s erratic tariff announcements.
So, is everything fine?
Not entirely. Because coupon yields are only one part of the return calculation, especially if you are investing in foreign bonds or do not intend to hold them to maturity. It is always about the interplay between currencies, interest rate differentials in different regions and also the expected returns on alternative investments, especially in the equity market.
In this context, we found the movements between the yields offered in two ‘safe havens’ – the USA and Germany – particularly interesting. The graph shows the yield differential at the ‘short end’, i.e. in a maturity range of two years. The yield premium of US Treasuries over German Bunds is shown on the left-hand side. The right-hand axis shows the exchange rate between the euro and the US dollar. The exchange rate graph is inverted, so when the gold line points downwards, it indicates a weak dollar.
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About the author
Frank
Lipowski
Frank Lipowski ist Portfoliomanager bei der Flossbach von Storch SE in Köln.
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