A global flight from safety has been the theme in the bond markets this week. US banks have reputedly been selling Treasuries to raise cash for payouts to shareholders via either cash dividends or stock buybacks. Investment managers have been moving out of the safety of Treasuries and bunds and into the higher yields offered by the likes of Italy, Spain and especially Portugal. Funds have flowed out of bonds in general and back into equities, which are historically under owned.
Here’s a table showing how yields of higher-quality sovereigns are moving up while yields of riskier sovereign debt are stable to lower, a sign of demand for relative “junk” and a move out of the safety trade.
Tighter sovereign spreads tend to be euro supportive, all else being equal.
