financialsense.com / PATRICK O’HARE via Briefing.com / 09/12/2016
I had another topic planned for this week’s column, but then North Korea had to go and conduct an underground nuclear test—literally and figuratively. I’m concerned about the ramifications of that test in general, but what concerns me more specifically about that test is the reaction of sovereign bond markets to it.
Basically, there was no reaction to it.
Here we have a rogue nation, with a nutty leader, getting one step closer to being able to deploy a nuclear weapon and what did sovereign bond markets do? They sold off.
There was no flight-to-safety in the sovereign bond markets. Zero. Nada. Zilch.
The yield on the 10-yr Treasury note rose eight basis points to 1.67%; the yield on the German bund jumped seven basis points to 0.01%; the yield on the UK gilt climbed ten basis points to 0.76%; and the yield on the Japanese government bond increased two basis points to -0.03%.
Separately, China reported on Friday that its consumer price index was up 1.3% year-over-year in August, versus 1.8% in July, and Germany reported a decline in both imports and exports for July.
That is bond-friendly stuff, yet bonds came under enemy fire anyway. Today, we’ll examine why—or at least why we think they did.