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German Bond Yields Rise, Narrowing Gap With U.S. Treasurys -- Update

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01/13/2020 | 04:51pm EST

By Sam Goldfarb

Selling in European government bonds narrowed the gap between U.S. and German bond yields Monday, extending a recent move propelled by easing concerns about the eurozone economy.

The yield on the 10-year German bund settled at negative 0.201%, according to Tradeweb, up from negative 0.235% Friday.

Yields, which rise when bond prices fall, have been trending upward on German bonds since early September, reflecting some improvement in global economic data and de-escalation in the U.S.-China trade war.

Although the yield on the benchmark 10-year U.S. Treasury note has also climbed since last summer, it hasn't increased as much as its German counterpart. That means the extra yield investors can get from buying U.S. Treasurys over German bunds is now less than it used to be.

Data released last week showed German industrial output rose 1.1% in November from the previous month -- above the 0.7% increase anticipated by economists surveyed by The Wall Street Journal.

Other data has showed continued weakness in the German economy. Still, some investors are hoping that a preliminary U.S.-China trade deal can help lift its manufacturing sector, which is closely linked to China.

At the end of Monday's session, the gap between the 10-year yields in the U.S. and Germany was 2.047 percentage points -- down from 2.06 percentage points Friday and as much as 2.504 percentage points last July. The yield on the 10-year U.S. Treasury note settled at 1.846%, compared with 1.825% Friday.

"After a string of just horrific economic data, the data has been less worse in Europe," said Robert Tipp, chief investment strategist and head of global bonds at PGIM Fixed Income.

At the same, he said, the yield on the 10-year Treasury note has been capped at around 2% due to the gravitational pull of low yields in Europe and the widely held view that short-term interest rates set by the Federal Reserve have already reached their peak for this economic cycle.

Write to Sam Goldfarb at sam.goldfarb@wsj.com

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