Pain or Gain as the Bund Yield Heads Back to Zero?: Taking Stock

HSBC Sees Europe as Environment of Weaker-Than-Anticipated Growth
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While European stocks’ new-year rally is losing steam, with a number of technical flags Bloomberg Terminalrecently pointing to a pause, it’s worth having a look outside the equity world for some insight. Fixed income is a good place to start: the German 10-year bund yield is drifting toward zero, hitting its lowest level since November 2016, with big consequences for stocks and sectors.

At first sight, falling German yields may sour the mood for stocks, given the bund’s status as the euro-area’s sovereign-debt benchmark. The drop in yields seem to signal headwinds for the euro area, and it doesn’t bode well for the region’s banks, strongly correlated to the yields.