Investors Are Selling Bonds - but for Different Reasons

Investors Are Selling Bonds - but for Different Reasons
In the US, bond investors see more inflation coming. In the eurozone, they see stronger growth.
Updated February 5 2018 8:44 am GMT

Investors on both sides of the Atlantic are dumping government debt, but for different reasons. In the US, they see more inflation coming; in the eurozone, they see stronger economic growth.

Different Stages

The different stages of each economy explain the varying assessments by investors, analysts say. Whereas the US expansion has lasted 8½ years, the eurozone recovery only started in 2013 and has longer to go, which could also explain some of the dollar's recent fall to a three-year low against the euro.

"The rise in inflation expectations is becoming a bit of a theme in the US," said Pieter Jansen, senior strategist at NN Investment Partners, whereas in the eurozone the bond selloff is "more of a reaction to the growth data we've seen over the past year, which has been very strong."

Breaking Down Yields

Bond yields, which move inversely to bond prices, are a gauge of future economic performance because they broadly track where central banks are expected to set interest rates. Officials can raise rates because the economy gets stronger, so borrowing costs linked to inflation will increase as well, or simply because they see inflation jumping and they want to keep the "real" cost of borrowing unchanged.

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