Last week’s rise in German bund yields might have reflected expectations that Germany has finally accepted the need to shoulder more of the peripheral economies’ fiscal risk. After all, German Chancellor Angela Merkel has pushed for a general move towards fiscal union. But we think that the sell-off in bunds primarily reflected a further rise in worries about a euro-zone break-up. Not only is Germany still strongly opposed to proposals for euro bonds, but the fall in the euro exchange rate also suggests that break-up fears are growing. We think the process has much further to go.