The gap between Eurozone and US government bonds is still widening
The performance of government bonds is being affected by the latest moves by central banks and the economic and financial outlook for the Eurozone and the US. Let’s take a look at the situation for 7–10-year maturities.
The chart above illustrates the trend in the strength ratio between US and Eurozone government bonds maturing between seven and ten years. Derived using two dollar-denominated ETFs, the indicator shows a sideways trend over the past year. Some notable turning points can be identified. The first coincided with the announcement of the Fed’s three interest rate cuts in September last year. The second occurred around the time of the inauguration of the new Trump administration. The third occurred between late March and early April, when the US introduced new reciprocal tariffs. The yield graph proceeded in a mirror-image fashion.
In the very short term, therefore, European government bonds are stronger than US bonds. This can be explained by the differing approaches of the two central banks, as well as by the growing concerns about the sustainability of US debt that came to the fore with Moody’s announcement that it was downgrading the US’s long-term debt rating.
