The US Treasury curve, as you might have heard, is inverted. After today’s repeat sell-off, it’s a little less inverted than it had been recently (un-inverted in the 2s10s, which isn’t unusual) given how yields closed at the longer end up more than those up front and middle. The zig-zag back and forth of ultra-short run market fluctuations continues.

But what about the intermediate trend for other curves around the rest of the world?

It is a global bond market, after all, so if USTs are upside down we shouldn’t expect to find outright contradictions elsewhere in places like Japan or Germany.

Starting with the latter, yields over the past few months have gone vertical (comparatively speaking) there, too. Unsurprisingly, the higher Treasuries go the more they tug on bunds (10s) and bobls (5s) as somewhat alternatives.

There is much less crossover short USTs to schätze (2s), however. Part of that has to do with the ECB’s NIRP. Mostly, though, a lot more about collateral shortage and how all of Europe gets funneled into these German front curve pieces in place of Greek or Italian. And, compared to something like USTs, there just aren’t as many schätze issued (a country notoriously frugal about its budget isn’t going Uncle Sam-wild auctioning off instruments of any maturity).



That said, those 2s have gone vertical, too, but that calendar spread isn’t analogous to the UST 2s10s. Even so, it’s interesting how it has only steepened very modestly and nowhere near 2018’s recent high despite the heavy collateral burden weighing down the schätze end of it. That might be the more important takeaway.

The 5s10s, on the other hand, the German middle separation is as the US belly. As rates go up across Europe those parallel parts of the European curves flatten. And it goes back to last May, too, just like a whole bunch of other things including Treasuries. More apples to apples, there’s solid consistency.

This piece hasn’t come close to inverting like in Treasuries, and that’s a function of how the market perceives so much less from the ECB rate hiking schedule. Unlike the political panic going on in Jay Powell’s conference room, Christine Lagarde has purposefully maintained a staider stance even as her own headline consumer price data goes way up, too.

Far greater, more meaningful differences in core inflation rates (meaning the Continent’s HICP is much, much more exclusively oil than elsewhere), as well as Europe’s much closer two-way connection with China and sensitivity to its dramatic slowdown/downturn, there are any number of reasons why the ECB is figured, and priced, to lag the Fed.

Even so, Germany’s 5s10s within a few bps of matching 2020 lows, this is its own way of echoing USTs increasingly upside-down.



What about JGBs?

Zilch. There is good reason why I focus what less attention I pay to JGB’s on the nominal movements of the 10s rather than the entire Japanese government curve. For one thing, that curve has been steepening – if you can even call it that – at both key junctures (2s10s and 5s10s) ever since September…2019.

Late 2019 recession? Didn’t change. COVID overreaction producing a bigger contraction? Nada. If you want to get technical, the JGB curve had actually steepened a little bit during those as is typical in any other curve when the economy finally goes down (the two spikes shown on each chart below).



Is there anything meaningful out of those changes shown above? Not really, at best more technical issues related to QQEs and whatnot. Where it would demand notice, should the JGBs flatten beyond a certain level, like they had very late in 2018 and for much of 2019 (Euro$ #4 landmine), or if suddenly the curve began to steepen way beyond the limited boundaries of the past half decade.

You can see why below, as well as the reason for quotation marks around “steepening” in this JGB context. For now, the JGB curve shape just isn’t telling us anything of note.


Again, we’ll pay closer attention to any change to nominal yields. On the one side, this would be further rate increases going outside the BoJ’s yield curve control fantasy line – 10s rates significantly beyond 20 bps that would then stick beyond the threshold despite central bank operations. That hasn’t happened even as yields continue to rise elsewhere around the world, though it is getting close. 

On the other end, as noted on the couple of occasions when Japan’s 10s flirted with zero, that, should yields go the other way, would be noteworthy for the opposite. And it should be pointed out this didn’t happen last time until early 2019, a lagging move compared to either bunds or Treasuries.

Right now, JGBs are simply stuck where they usually are in between, caught in their own financial No Man’s Land.

Summing up: USTs inverted in clear pre-recession position; Germany 5s10s right with them even if not inverted; Germany’s 2s10s should be far steeper but aren’t, so more aligned with USTs than not; and Japan is, for now, the usual Japan-y on neither side of the argument until it probably ends up lagging moderately in one direction or the other.