A sharp rise in European government-bond yields last week is prompting investors to bet on the region’s central bank intervening to keep financing costs low.
The jump in returns on German and French bonds mirrored the sudden climb in Treasury yields: Investors were selling down U.S. government bonds, considered among the safest assets in the world, as they grew more optimistic that the American economy is poised for a sharp recovery. Yields on bonds climb when prices drop.
That bout of optimism led to a selloff in government debt in Europe as well, though the economic prospects in the region remain more cloudy. Covid-19 vaccines are being rolled out haltingly across the continent, and the region’s proposed recovery spending plan and outlays by individual nations pale in comparison to the trillions of dollars that the U.S. government has spent on relief packages.
The yields on both German and French 10-year bonds remain in subzero territory. Still, their sudden rise sparked concern that borrowing costs will climb for businesses, further hampering Europe’s economic recovery. Government bonds are used as a reference for determining the cost of other types of debt, including loans to companies.
In the U.S., Federal Reserve officials have said the jump in Treasury yields is a healthy move, reflecting investors’ improved expectations for the economy.