• Meanwhile in markets, key bond yields continue to trade at technical levels, with US Treasuries outperforming on the Biden administration’s latest tax proposal. The notion that it is logically impossible for everyone to get rich off the pandemic is dawning on markets, with some slight losses for equities and a sell-off in price-chasing crypto space gathering pace.
  • In bonds the 10y Bund yield is now clearly above the minus 30bps line in the sand, having traded around minus 25bps most of the time this week. The ECB’s snoozefest meeting yesterday hasn’t awoken the bond market from its recent slumber. In any case, Lagarde & Co will have to decide on tapering pandemic QE volumes in June. And when the recovery and vaccinations are further advanced, it will be a lot easier for the hawks to make their case for the taper.
  • Regarding Bunds, we’ve seen market talk of a Greens party discount being priced in. That is, the assumption is that fiscal policy under a Greens-led government would be easier, thus boosting the supply of German federal debt securities. The problem with this line of reasoning is the constitutional debt brake, which prevents Germany from running structural deficits. Repealing the debt brake would require a two thirds majority. There are no signs at all of such a majority coming into existence after the elections in the fall.


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