US Fed Chair Janet Yellen speaks with European Central Bank President Mario Draghi in Jackson Hole in 2014. Photo: Reuters / David Stubbs

Bloomberg writes on how European Central Bank policy, and the data driving its decisions, will likely be the largest short-term risk to US rate markets, the opposite of what we normally see:

“Although the Federal Reserve will make headlines while it runs off its Treasury and mortgage holdings, Fed actions will only cause the U.S. Treasury Department to add incremental interest-rate risk to the market.

Conversely, the ECB reducing its purchases of long-duration assets means the market will have to absorb a meaningful amount of rate risk in the euro zone. That will spill over to the U.S. as higher Treasury yields.

Indeed, what happened during the week ended June 30, when 10-year bunds jumped 22.1 basis points and similar-maturity Treasuries climbed 16.7, bears this out. These days, when Europe sneezes, the rest of the world feels an unsettling chill.”