Europe’s pain, US’ gain

US yields finally eased yesterday, partly as the sharp selloff and now-attractive yields tempted buyers back into Treasuries, and partly as mounting concerns about European debt — especially France — encouraged a flight to safety.

And the US dollar gained sharply at the same time. That may sound contradictory, but both moves tell the same story: investors were looking for shelter. Buying Treasuries pushes their prices higher and their yields lower, while demand for dollar assets supports the greenback. And higher European yields hardly make the euro more attractive when they reflect growing doubts about governments’ ability to manage their debt. You get a higher yield, yes, but you also get a bigger headache.

We could debate whether US debt is safer than that of other so-called developed markets, but the jaw-dropping spike in the French-German 10-year yield spread to above 140bp — the highest since 2012, during the euro area sovereign debt crisis — got investors scratching their heads.