The endgame for bunds - time to sell

German finance minister Wolfgang Schaeuble recently said the unnaturally low yield for bunds is not the financial godsend it first appeared to be. Rather, it is a real source of concern.

The bund yield is a measure of stress in the eurozone, and when this yield sits at 1.5%, the stress level is very high. This makes the bund yield a very poor measure of Germany’s credit risk, which is what the finance minister was hinting at. The safe haven role played by the bund is reflected by the negative correlation between the yield for bunds and for peripheral bonds since 1 May, while the correlation between five-year CDS for all eurozone sovereign bonds has been strong or very strong in all instances. In other words, Germany has very significant exposure to the many facets of eur...