Hottest Trade in Bonds Gets Boost From German Spending Plan
The German government's plan to invest hundreds of billions of euros in defense and infrastructure is boosting a popular trade in bond market, known as a curve steepener, where investors bet that securities maturing in the more distant future will underperform shorter-term notes. The gap between two- and 10-year German yields has widened to its most in two years, with investors expecting higher government spending to result in increased bond issuance, faster growth, and possible inflation. This trade is gaining momentum as investors anticipate that Germany's parliament will pass the spending plan, despite a challenge from the Green party.
- As European governments increase spending on defense, it highlights the growing threat of cyber attacks and terrorism, which may be a catalyst for further government investment in cybersecurity measures.
- What implications would a steeper European yield curve have for the global economy, particularly in terms of interest rates and inflation in countries with weaker economic fundamentals?