The yield spread between German 2-year and 5-year government bonds is flattening, signaling overvaluation.

<(1) According to IFR analysis, the yield curve slope between the 2-year and 5-year French government bonds has flattened after addressing its directional adjustment, and the same flattening trend is observed in Germany for the corresponding maturities. (2) Based on the regression analysis of constant-maturity yields over three months, Germany’s 5-year government bond appears approximately 4.6 basis points overvalued, relative to the beta-adjusted 2-year government bond, which equates to 2.0 standard deviations. (3) This valuation level indicates that market pricing for medium-term rates already reflects substantial expectations. If economic data or central bank policy signals show marginal changes going forward, this maturity segment may face certain correction pressure.>