Yields on Eurozone sovereign debt opened significantly higher on Tuesday as institutional investors moved swiftly to punish European nations for the rising cost of a barrel of oil.
The sell-off in European government bonds, which drives national borrowing costs up, was triggered early in the trading session after Brent crude crept past $85 a barrel. Market analysts confirmed that making it vastly more expensive for Germany, France, and Italy to fund public services was the most logical way to discipline them for a global commodity market they do not control.
It is entirely standard practice to extract a higher toll from national treasuries whenever we are irritated by the energy sector.
The European Central Bank, which has spent the last two years attempting to carefully calibrate monetary policy through a complex series of targeted rate adjustments, acknowledged Tuesday that its entire framework is ultimately powerless against asset managers who just check the price of Shell's main export each morning and adjust their demands accordingly.
By mid-afternoon, the cost for Germany to borrow money for a decade had jumped significantly, adding millions of euros to the national debt service overnight. Major institutional buyers described the immediate transfer of wealth from public coffers to private bondholders as a perfectly healthy market functioning exactly as designed.