German Bond Yields Surge Amid European Bond Selloff

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Bond prices slumped across most of Europe on Tuesday, sending the yields sharply higher and pushing German benchmark borrowing costs close to the highest level in 2015. The yield on 10-year German government bonds rose 12 basis points to 0.703%, while the 30-year yields climbed 14 basis points to 1.296%. The sharper rise in the longer-dated maturity means the yield curve is steepening and indicates investors are getting more confident inflation and growth will pick up in the eurozone, Lyn Graham-Taylor, fixed-income strategist at Rabobank explained. "We're getting into the realms where this move can't just be blamed on technical [factors]. Instead maybe there's a decent chunk of market participants [that is] shifting to a curve-steepening view," he said. "The yields are meant to be a reflection of growth and inflation expectations," he added. The European Central Bank in March launched a €1.1 trillion quantitative-easing program to stimulate the eurozone economy and particularly fight off the threat of deflation. "It does appear [QE] is feeding into inflation expectations, which is what they are aiming for," Graham-Taylor said. "But big picture, we're not very positive on the longer-term impact of QE in terms of the ultimate economic impact."

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