Treasuries Stronger Than Bunds?

Still don’t believe in currency wars? Bond traders would certainly beg to differ as the risk of U.S. default is actually making German Bunds more dangerous to hold.
In a classic case of cutting off your nose just to spite your face America’s fiscal irresponsibility is hurting… Germany? Say what? How does this make sense?

While Germany’s economy grows faster than that of the U.S. and the rest of the Eurozone, its debt returns are lagging. Gaining only 1.4% this year, as opposed to a to-date return on Treasuries of 3.3%. The combination of mass intervention on behalf of other lagging EU economies and a worsening of German public finances are putting a dent in expected Bund returns.

Keeping in mind:

Credit-default swaps suggest the forecasts for bund yields may be too conservative. The cost of hedging against losses in German debt for five years ended last week at 56.8 basis points, compared with 52.9 for the U.S., according to data provider CMA, which is owned by Chicago-based exchange owner CME Group Inc. German swaps rose above their U.S. counterparts on July 11 for the first time since April 26.

Are any of you guys currently in on the bond market? I get the feeling that so much gloom and doom has already been priced into U.S. Treasuries that they may be in line for some growth, in spite of the looming specter of a default. How do you guys look at this pretty odd seeming contradiction?

Is there more to German debt’s sagging returns than meets the eye? Its nice to be able to help your neighbors out, but is there a point after which you are giving away your own hard earned standing?

I have always questioned Germany’s decision to leave the Deutschemark behind and recent grumbles from the Bavarians suggest they themselves are not happy with the situation, either. CDSs tend to foreshadow coming events in markets and this seemingly mixed signal has me wondering…

What if…