Rates Spark: Big Divergence Trade Ongoing

2025-03-11 04:30:00 ET

Summary

• Germany's fiscal plans have hit first stumbling blocks, but markets assume the change in the German fiscal attitude sticks.
• The front end of the EUR curve is held up by tariff uncertainty, but the path is to a 3% handle for 10y Bunds.
• US Treasuries are not reacting to this, but to elevated domestic angst on a complex policy prescription laced with uncertainty.

By Benjamin Schroeder , Padhraic Garvey, CFA

US Treasuries remain enamored by 4% as a target for the 10yr

Severe risk-off and elevated volatility characterised a rough day for US markets. No Monday crash here, but certainly a slow-grind move south, extending from preliminary weakness last week. Only one way to go for US Treasuries on the back of this, as the 10yr homed in on the 4.2% area. The dominant driver here is a self-harming process coming from the complex policy prescription being shown to the markets, and the back story is one of a resurgent Europe versus a more isolated United States, or the perception thereof. Whether this sticks remains to be seen, but it's a theme that's likely to persist a bit until or unless negated by events or new information....

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