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Illustration: Aïda Amer/Axios

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.

Go deeper

Dion Rabouin, author of Markets
Jan 11, 2021 - Economy & Business

Criticism of the Fed is going mainstream

Illustration: Eniola Odetunde/Axios

Big names in the world of finance are beginning to call out the Fed and other central banks for their role in ramping up economic inequality and manipulating financial markets — a departure from the praise they received for most of last year.

Why it matters: Wall Street was the only pillar of solid support. Most Americans say they don't trust the Fed and politicians look to be taking aim at the central bank for overreaching with its unprecedented actions in March.

Dion Rabouin, author of Markets
Jan 12, 2021 - Economy & Business

For all the fuss, the dollar rally has been underwhelming so far

Data: FactSet; Chart: Axios Visuals

The dollar index rose for the fourth straight session on Monday, worrying investors that the recent rally that has sent the dollar lower as stocks have risen higher could be coming undone.

What they're saying: "The appreciation of the dollar is coming at a time of not only rising yields but a risk-off period created by heightened uncertainty about political developments in the U.S.," Paresh Upadhyaya, director of currency strategy and portfolio manager for Amundi Pioneer Asset Management, told Reuters.

Biden picks Warren allies to lead SEC, CFPB

Photo: Justin Sullivan/Getty Images

President-elect Joe Biden has selected FTC commissioner Rohit Chopra to be the next director of the Consumer Financial Protection Bureau (CFPB) and Obama-era Wall Street regulator Gary Gensler to lead the Securities and Exchange Commission (SEC).

Why it matters: Both picks are progressive allies of Sen. Elizabeth Warren (D-Mass.) and viewed as likely to take aggressive steps to regulate big business.