It’s fun anthropomorphize bond markets. After all, by the time we admit that even “black box” trading still results from human programming, markets are really just a mathematical representation of psychology.
In human terms then, US bond markets (Treasuries) are friends with other bond markets. One of their best friends of the past several years has been European bond markets (often referred to here as “Bunds”). They’ve been there for each other during highs and lows. If something was good for one, it was perceived as good for both, and vice versa.
Then Treasuries started having some tough times in mid 2013 and Bunds weren’t as eager to join in the depression-fest this time around. Not only did they not lose as much ground as Treasuries, but they actually turned around and began heading back to their best-ever levels.
Now… these two old pals can’t simply ignore each other. Bunds were certainly forced toward higher yields (at first) by the taper tantrum, even though they eventually resisted. Now in 2014, Treasuries are being forced to be a little more upbeat than they otherwise might be due to their cheery European buddies. In other words, super low yields in Bunds have been weighing down US yields. Same old, same old.
But the boundaries of the relationship are currently being tested! Treasury yields have pushed up to their highest levels vs Bunds since the start of the European Union. Now the question becomes: are we simply testing the boundaries a bit or will we press further into uncharted territory?