all the above suggest about the future path of yields? the sharp rises in expected short - term interest rates and hence in long - term yields ( the term structure of interest rates in theoretical terms ) are only likely to follow a strong recovery and subsequently a sharp rise in inflation expectations ( in empirical terms, historically, sovereign bond yields and, to a lesser extent, exchange rates track nominal gdp growth rates ). we are not there yet : only with a robust recovery in europe and a monetary policy normalisation in the us can markets start pricing risk in a traditional manner. the recent bond sell - off it is true, though, that the last days of april saw the beginning of a sharp sell - off in sovereign bonds across the euro area bond markets, leading to soaring volatility in european bond markets, a sharp steepening in the yield curve and an appreciation of the euro. the figures are quite spectacular as is often the case with the markets : in just 17 working days, the global sovereign bond index lost more than €0. 5 trillion of its value! this is an upward correction in bond yields from an early overshooting of bond prices ( early undershooting of the exchange rate ), which marked the first significant adjustment in european sovereign bond markets since mid - 2013 ( triggered in turn by the federal reserve ’ s tapering of its asset purchases ). the 10 - year bund yield increased from a historical low of 7. 5 bps on 20 april to over 80 bps by early june. as for the other euro area countries, yields in france and other core countries increased in a similar way, while the spreads of peripheral bonds over the bund have narrowed. turning to the us government bond market, and given the strong comovement of 10 - year german and us government bond yields ( with a high correlation coefficient of. 80 ), the 10 - year us treasury yields rose substantially to reach their highest closing levels this year in the region of 2. 30 %, as the contagion from the european bond selloff was the main driver of their recent rise. given the fact that recent us macro data were mixed and the uncertainty surrounding the fed ’ s rate hike timing, there was additional volatility in us yields spilling over to bunds and other euro area countries, with the interest rate differential set to remain in the region of 1. 50 %. in addition, the widening gap between us and euro area interest rates is also driving us companies to issue more

him on the head. themistocles looked at him calmly and said : “ strike me, if you will, but listen to me. ” according to plutarch, the spartan commander was so taken aback by themistocles ’ s reaction that he backed down and let him persuade the council of his winning strategy. i can ’ t promise you the outcome of all discussions will be the same. but i think it is increasingly important that central bankers speak up on these matters, even if what we have to say is unpleasant to and opposed by at least some domestic national audiences. many of us are no strangers to raised staffs – at least metaphorical ones. but tonight we are in friendlier company, and with no persian fleet in sight, let ’ s raise our glasses instead, and toast to peace, social prosperity and to the health of our common currency which connects us all, the euro.