Bunds Turn Germany From Hero To Zero As DAX Enters Correction
By Roxana ZegaSofia and Horta E Costa
Investors in German stocks have had a dizzying ride, first enjoying a rally that sent the DAX Index to a record in April before the gauge started one of Europe?s biggest slumps.
The blame lies in part with the bond market, where German debt just had its worst week since 1998. With the correlation between bunds and stocks near a 1 1/2-year high, traders bailed out of equities, too. The DAX has fallen 11 percent from its peak and closed at a three-month low. The 10-year government bond dropped for a fifth time in six days.
?It?s pretty difficult to ignore the crash in bunds,? said Michael Kapler, who manages equities at Mittelbrandenburgische Sparkasse in Potsdam, Germany. ?Markets were priced for perfection. You could almost call it a hero-to-zero situation.?
While European Central Bank stimulus weakened the euro and suppressed bond yields at first, higher consumer prices and an improving economy are now propelling both higher. That?s bad news for exporters such as BMW AG and Daimler AG that earlier in the year sent the DAX up as much as 26 percent.
Mario Draghi?s warning on volatility last week turned into a self-fulfilling prophecy. A gauge tracking swings for 10-year bund futures jumped to the highest level since 2012. DAX volatility is up more than 50 percent from this year?s low.