Spread Between Treasury And German Yields Widens To Most In a Decade

By Ellie IsmailidouMarketWatch Pulse

The spread, or yield differential, between the five-year U.S. Treasury and its comparable German bond reached its widest point in a decade Thursday. The spread reached 180 basis points, approaching the record established after the introduction of Europe's shared currency, the euro, according to FactSet. FactSet data show that bond-yield spreads between five-year German bonds, known as bunds, and five-year Treasurys hit 150 basis points in 2005. At current levels, spreads are approaching a record of 230 basis points hit in 1999. Analysts said the main driver behind the widening spread is the so-called monetary-policy divergence, as the dovish European Central Bank is ready to expand its stimulus at a time when the hawkish Federal Reserve is about to hike interest rates for the first time in nearly a decade. The significantly higher yield makes Treasurys more attractive to global fixed-income investors, fueling foreign demand for U.S. government debt. Strong foreign demand has recently driven Treasury prices higher and pushed yields, which move in the opposite direction, lower.

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