bond yields marched swiftly higher around the world in the wake of donald trump <u+2019>s election victory. but as the dust settles, the picture is changing. some big disconnects are opening up, particularly between the u.s. and europe. before the election, the spread between 10-year u.s. and german bond yields had been relatively stable, at around 1.6 percentage points through 2016. but now the two markets are moving to a different drum: the 10-year spread has ballooned to more than 2 percentage points, its widest since 1989, according to factset data. while u.s. yields have risen to their highest point this year, german yields have moved steadily lower in the past week. this reflects two key forces. first, there is the prospect of divergence in growth and central-bank interest rates: the market thinks both are heading higher in the u.s. but remaining muted in europe. expectations of short-dated eurozone interest rates have fallen back, even as market-based measures of medium-term inflation expectations have risen, ing notes. secondly, and more worryingly, german bonds are benefiting because southern european government bonds have been hit. the 10-year spread between italy and germany has reached its widest point since may 2014, despite european central bank bond purchases. france has come under pressure too. political and credit risk are coming to the fore again in europe , encouraging investors to seek safety. the divergence could be here to stay, with europe facing a packed election calendar in 2017. bond investors need to get used to a world where markets are no longer in sync. write to richard barley at richard.barley@wsj.com
the bond market<u+2019>s big break: u.s. vs. europe  - wsj
richard barley