U.S. vs Europe: The Political Risk Reverses in Markets

The turmoil in the U.S. surrounding President Donald Trump pushed global bond yields lower this week. But under the surface, the narrowing spread between U.S. and German bond yields is a key indicator of how markets are reflecting changing political fortunes.

The gap between 10-year U.S. Treasury and German bund yields ballooned at the end of 2016 to 2.3 percentage points, reaching a level not seen since 1989. U.S. yields vaulted higher on a wave of optimism about reflation, helped by a synchronized pickup in global…