NEW YORK (TheStreet) -- Over the past ten days the yield on 10-year German bunds has doubled and the yield on the 10-year U.S. Treasury note has risen by more than 35 basis points. What's going on?
Last week, I argued that world investor confidence was the major force currently impacting longer-term interest rates and that this was adding to the volatility of the market.
Now, it seems that investors are becoming more confident in economic growth in major countries and this is causing some of the more mobile funds to move out of "safe haven" investments.
The reason seems to be that there is more confidence in the recoveries taking place in the eurozone and Japan. The World Bank has just released its newest outlook for the global economy and although it has lowered its forecast for world economic growth, it has noted "healthier growth in Europe and Japan."
It has been the financial weakness in these two areas that has been the driving force behind the movement of "risk averse" funds to German bunds and U.S. Treasuries. The flows of funds into Germany and the U.S. have been closely associated with events in the eurozone and Japan and as the concerns worsened over time, investors moved their money.
Certainly, the slower growth in emerging market countries will hurt their capital flows. The Wall Street Journal article cited above has that the Institute of International Finance believes that "capital flows into emerging markets will fall to their lowest level this year since the financial crisis," and this is a concern.