Recent weak data emanating from the Eurozone has been weighing on German Bund yields. The significant drop in the Eurozone Citigroup Economic Surprise Index (CESI) has pressured German Bund yields lower. Looking through the structural decline in German yields, we can see that short-term, cyclical moves are driven by economic activity. As the CESI has tumbled from 92 to -88 over the last five months, German yields have retreated about 25bps, from 75bps to 50bps.

But, the overall trend still appears to be positive for European economic growth. Today we saw industrial production reported by the Eurozone economies, and while it is subject to fluctuations, the general trend still appears upward, making higher highs and higher lows.

For the last few years, German and US yields have been fairly-well correlated (91% over two years), but this correlation may be breaking down.