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Today’s briefing: |
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Good morning Intriguer. Long-time Intriguers might recall way back in our early days (hi dad 👋) we had a regular section that would contrast the way different headlines around the world were framing the same world events.
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That same section still exists in our weekly Spanish edition (¡free to subscribe!), so I thought you might be interested in how authoritarian rivals are now framing this week’s LA events via their own state outlets:
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🇨🇳 “LA chaos reflects deep-rooted US divisions”
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🇷🇺 “LA protests reveal population’s discontent with US government policies”
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🇰🇵 “Protesters condemn indiscriminate detaining of people without just cause”, and
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🇮🇷 “Make America quashed again”
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That’s right — leaving aside how you feeling about these events, China, Russia, North Korea, and Iran are all seizing their moment to a) allege US hypocrisy, b) push a narrative of US division, decay, and decline, and thereby c) curb any curiosity their own people might have about trialling any new-fangled democratic model.
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Anyway, let’s take a look at what’s going on with European bonds, shall we?
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P.S. – Will you be in New York the evening of Monday June 23rd? Join us for Intrigue drinks with special guests, hosted by the Czech ambassador to the UN! RSVP here.
Number of the day
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5%
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That’s how much Brent prices spiked yesterday (Wednesday) after news broke the US is drawing back its diplomatic presence in Baghdad, as rumours swirl around possible imminent US or Israeli strikes on Iranian nuclear facilities now that talks have faltered.
What’s up with European bonds
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Move aside US Treasuries, it’s European bonds getting all the attention right now.
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You see, it turns out Japan offloaded $13B worth of German bonds back in April, even after Friedrich Merz looked set to restore Berlin’s political stability and fiscal sustainability.
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Who cares?
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One’s care-factor might depend on what drove Japan’s decision to sell:
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Does famously long-term Japan no longer see Germany as a good bet?
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Did Japan just want to free up some cash for emerging priorities back home?
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Or… might it have something to do with all those sizzling rumours that US trade negotiators are nudging governments to purchase US bonds, meaning Tokyo might’ve simply swapped bunds for bonds.
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It also depends a little on how you view what’s happening in Italy, Spain, and Greece.
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Long the EU’s fiscal bad boys, markets are now suggesting there’s not too much risk-difference between lending to these three versus their thrifty neighbours like Germany.
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Italian bond yields are now <1% higher than in Germany (versus a full 5.7% higher a decade ago)
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Spain has now pushed its borrowing costs below high-fallutin’ France, and
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Even Greece, once flailing under the frugal gaze of Angela Merkel, is now only facing borrowing costs a tad pricier than those confronting Paris.
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What’s going on?
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As always with bonds, there are a few drivers in parallel, including…
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The European Central Bank’s rate cuts, which tend to have bigger impacts at the bloc’s periphery (more liquidity and confidence, lower risk perception)
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Those periphery capitals have also done a bang-up job of lowering their debt-to-GDP ratios lately, giving investors and lenders more confidence
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Giorgia Meloni seems to have cracked the code for political stability in Italy, and
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The EU’s big spending plans around recovery and security have encouraged fiscal discipline while enabling joint EU borrowing (something Berlin resisted for years).
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Arguably, the common theme across each driver above is that investors and lenders are now detecting a moment of cohesion in Europe.
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Sure, Brussels will still be Brussels, and leaders will still roll into town wielding their veto like a stick to periodically jam through the EU’s spokes. But in the big picture, there’s now consensus around how much to spend, how to spend it, and how to finance it (jointly).
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So all that to say… maybe Japan’s decision to sell German bonds wasn’t about Germany.
Intrigue’s Take
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If we’re now arguably seeing new levels of EU unity… why? It’s partly the cumulative result of all the shocks over the past couple of decades, like the debt crisis, Brexit, Covid, Russia’s aggression, and big shifts in US positions around security and trade.
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Each new shock has variously inflamed divisions within and between EU members, but at the same time, it’s also forced Europe’s leaders to reassess their appetite for greater integration to weather each storm. EU critics long saw each crisis and EU response as proof of the bloc’s eventual decline. And sure, history might prove them right.
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But these bond movements also hint that maybe the critics are wrong: perhaps the EU’s architects didn’t plant the seeds of the bloc’s own demise, but rather built in just enough flexibility for the kinds of financial engineering and political manoeuvring necessary not only to adapt to each new shock, but to evolve into a stronger bloc. Maybe.
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Sound even smarter:
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US Treasury prices rallied and yields dropped yesterday (Wednesday) after cooler US inflation data eased investor worries about the Trump tariffs, while raising hopes for a Fed rate cut by September.
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Overheard in the Intrigue chat:
(free to join if you refer 5 friends using your unique link down below!)
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“I remember when Macri won, Argentina was able to issue a 100 year bond in US$ in 2017 and how everyone was shocked (even us Argentines).” – C.G
Meanwhile, elsewhere…
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🇮🇳 INDIA – Plane carrying over 200 people crashes. |
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🇦🇺 AUSTRALIA – US launches AUKUS review. p span[style*=”font-size”] { line-height: 1.6; } Comment: This US announcement will fuel debates in the UK and Australia around the degree to which these allies feel they can rely on long-term US security pledges. |
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🇵🇱 POLAND – Tusk survives confidence vote. |
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🇵🇰 PAKISTAN – Defence spending explodes. p span[style*=”font-size”] { line-height: 1.6; } Comment: There’ll be cheers in both Beijing and Moscow, the top arms suppliers for Pakistan and India respectively (the US and France hope to cut Russia’s lunch in India). |
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🇦🇹 AUSTRIA – Country mourns school shooting. |
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🇮🇩 INDONESIA – Save the coral. p span[style*=”font-size”] { line-height: 1.6; } Comment: It’s hard to think of a better story to illustrate a) the power of social media, b) Indonesia’s growth / conservation trade-off, and c) Jakarta’s determination to secure the benefits of its own nickel, a key energy transition input for us all. |
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🇧🇷 BRAZIL – Former president takes the stand. p span[style*=”font-size”] { line-height: 1.6; } Comment: Bolsonaro continues to enjoy populist support among Brazilians who see his prosecution as politically-motivated. That leaves little margin of error for the court, just as Brazil prepares to host BRICS and COP climate summits. |
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🇹🇬 TOGO – Can’t touch this. |
Extra Intrigue
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Meanwhile, in other worlds…
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Sports: FIFA will consider expanding its Club World Cup to 48 teams (up from 32) after lobbying from European clubs that didn’t make the tournament’s first edition, which kicks off in Miami this Sunday.
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Space: An oxygen leak means SpaceX is delaying a launch that would’ve taken the first Indian astronaut to the International Space Station.
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Art: A Beijing auction house has sold a human-sized figure of a Labubu for $150k (it’s the furry, toothy monster figurine now at the centre of a global frenzy).
Sax solo of the day
Sick solo bro. Anthony Wallace/Agence France-Presse — Getty Images
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Why are two service members surrounded by fans? Why are they holding flowers? And why is one absolutely ripping what seems to be a sick sax solo, even getting down on one knee to ensure he can really put his back into it?
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This, dear reader, is what happens when global stardom meets geopolitics. It’s because four of the seven members of the K-pop supergroup BTS just wrapped their mandatory military service in South Korea, bringing us one step closer to their big reunion tour.
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Fun fact: they’re such an economic and cultural phenomenon that lawmakers actually passed a special 2020 bill allowing them to defer conscription until the age of 30.
Today’s poll
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Why do you think European bonds are so hot right now? |
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Yesterday’s poll: Do you think a declining birth rate is a national crisis?
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👍 Yep, and the government must act (32%)
🙅 Nope, leave it to individuals (62%)
✍️ Other (write in!) (6%)
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Your two cents:
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🙅 H.L.B: “Maybe the government could focus on reducing maternal deaths. Let’s try to keep the people who want kids alive rather than pushing kids on the reluctant.”
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👍 D.R: “A stable population is essential for the national future. If individuals aren’t choosing to have kids, the government needs to provide more incentives to start families. #MakeAmericaMateAgain”
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✍️ J: “I’m not sure we have a valid economic system if every country has to have an increasingly larger young base to make the whole thing work. Feels like a pyramid scheme that will break.”