Gold replacing German bonds as a safe haven?

Gold replacing German bonds as a safe haven?

Yesterday, for the first time, the Swiss 5-year bond yield was bid into negative yield. The Swiss safety deposit box grows in duration – Figure 1. ·         Importantly, other "safe-haven" bonds, such as German bunds and U.S. Treasuries are not following suit. o    German bund yields are actually soaring. §  And that is with this morning's 10-year auction that, according to initial reports, saw "decent" demand. o    Rising treasury yields are very near and dear to our hearts. The fit of the moves between the S&P 500 and U.S. 10-year Treasuries is now an impressive (or not really if your job is to argue why equity fundamentals matter) 77% - Figure 2.  §  Rising Yields = Rising Equities

·         Back to bonds: ·         The sell-off in German bunds coincides with a deterioration of creditworthiness of Germany versus Switzerland – Figure 3. o    One is a Target 2 creditor, which could get paid back in a euro-lite currency. The other is not. ·         The sell-off in Treasuries contains no such fuse, and thus one should expect no such fire behind the move. This is a key point (back to Figure 2). ·         You can't go to Switzerland without mentioning gold – Figure 4.

 

Figure 1: Swiss Bond Yields: 2 to 20-year Bonds