For a long time, the economic crisis in the Eurozone revolved around the risk of a breakup. Would a country leave and redenominate into their old currency?

This fear caused investment to dry up and peripheral countries, and borrowing costs for governments in Rome, Athens, Lisbon, and Madrid soared. At the same time, borrowing costs for Germany plunged, as invstors sought refuge in "core" Europe.

But that fear is long gone.

Spain just sold 3-year bonds at the lowest level in Eurozone history. Other countries have made similar records in recent days, as investor no longer fear a default.

But that doesn't mean the problems are over in the Eurozone. it just means there's a new problem, and that problem is bad growth and the risk of deflation.

Here's a fun chart: It's a chart going back three years comparing the trajectory of US 10-year bond yields vs. German 10-year bond yields. The US is orange. Germany is Green.

For a few years, the two countries saw their borrowing costs move in lockstep. This isn't too surprising. Both the US and Germany are among the safest of the safe havens, and the forces driving yields for both are similar on a global scale.

But Germany just saw borrowing costs hit a 6-week low, and the gap between the US and Germany is quite substantial. A German 10-year bond yields just 1.82%. A US 10-year bond yields 2.88%.

In other words, US investors are increasingly betting on higher inflation and stronger growth (hence the higher interest rates). Investors in German bonds are worried about weak growth and no inflation or maybe disinflation, or possibly outright deflation in the Eurozone.

So what we see right now in Europe taking place in the bond market is the handoff. Interest rates are plunging in Spain, Italy, Germany and so forth. The risk of default is not in anybody's mind. Now the risk is of Europe going down the low growth, Japanese deflation path.

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