Source: Bloomberg

The spread between safe German government debt and dodgy French and Italian government bonds imploded after Sunday’s French elections. But the absolute level of French and Italian yields has climbed back to where it was on Friday.

German bonds, to be sure, gave up even more ground. Germany saves and the Club Med countries spend, and Europe’s low — and to a considerable extent negative — interest rates are bad for savers and good for spenders.

That situation has passed its use-by date and the trend in European bond markets is upward, now that German Bunds are no longer needed as a safe harbor against a possible political disaster in France. The same is true of US Treasuries, the world’s favorite risk hedge. Every hedge fund in the world uses Treasuries – particularly inflation-protected Treasuries, or TIPS — as a disaster hedge. Bond yields are headed up — perhaps  to 2.5 for the US 10 year.