German bond yields have been on investor’s mind lately. The chart above shows the tremendous reversal in yields on the German 10 year bonds. After retreating into negative territory in April (where investor’s basically “pay for the privilege” of owning safe assets), bond sellers have come out in full force to drive yields up back into positive territory once again.
As you can see from the chart above, this rally in German yields has far surpassed any of the minor retracement rallies as yields effectively dropped from 2% to 0%.
What this means to me is that German 10 year bond yields are potentially headed back to the 1% to 1.25% range which coincides with the rise in yields in 2013 and resistance at those prior lows in 2013.
It’s hard to interpret what this all means or even if it means anything. Generally bond yields rise on anticipation of economic growth and increased risk taking. Yields have been suppressed in part because of the deflation threat and flight to quality, as countries within the Eurozone (mainly Greece) struggle to stay afloat. So it seems that these yield increases could be interpreted as a good sign? The problem however may be the rate of the increase (in a short amount of time) as opposed to the increase itself. Time will tell.
**Yields is a term used interchangeably with rates. So German Bond yield is the same as saying German bond interest rates. As rates rise the market value of the bonds decreases and vice versa.