By James Saft
(Reuters) – The recent fall in German bunds is the most interesting development in markets in months, and may contain hints of the fate of the euro itself.
German bunds have sold off sharply in June, driving yields higher. In recent days they have also broken a longstanding relationship and are now falling along with Italian and Spanish bonds, rather than, as they have almost throughout the crisis, rising as things in the periphery get hairy.
Since June 1, benchmark German 10-year yields have risen by nearly a quarter to 1.42 percent. To be sure, German yields are still very low, and the rise in and of itself is meaningless to Germany’s ability to manage its debt and borrow.
Strikingly though, in recent days at least, what is bad for the debt of weak euro zone nations also seems to be bad for Germany.
This is either really good news or really bad news.
Since the beginning of the euro crisis investors have sought safe haven in German bonds. Some of this is, in essence, capital flight, as investors worried about being stuck with new drachmas or pesetas opt for the debt of one of the few euro zone states whose currency, were it ever to leave the euro, might actually rally.