Investors position for more QE in Europe, but not in U.S.

Bond yields are rising in the U.S. but falling in Europe as investors are betting on a new round of central bank policy divergence.

What's happening: Benchmark U.S. 10-year Treasury yields are holding near their highest since early June. Yields jumped after minutes from the Fed’s September policy meeting did not mention plans to shift quantitative easing bond purchases toward longer-dated maturities, which many investors had been pricing in for months.

Yes, but: European government bond yields have been declining in most countries, with the exception of the U.K., as investors bet a second wave of COVID-19 infections could move the European Central Bank to cut interest rates again (below their current -0.5%) or increase asset purchases for the third time this year.

• ECB President Christine Lagarde warned this week that a second wave could undermine the eurozone’s economic recovery.

What to watch: The spread between yields on U.S. 10-year government debt and comparable German debt reached 129 basis points Thursday, its widest level since mid-March.

By the numbers: Spreads between German 10-year yields and other yields in Europe are narrowing, according to Tradeweb data.

• The German-Italian 10-year spread contracted Thursday to its tightest since early 2018 with the spread between German and Portuguese, Greek and Spanish bonds all also tightening notably in recent days.