For the first time on record, Germany’s 10-year yields are below Japan’s, an ominous signal for European Central Bank President Mario Draghi as he seeks to revive the euro area’s economy.
Tumbling yields on German debt, the euro area’s benchmark sovereign securities, are inviting comparisons with Japan, a nation wracked by decades of zero nominal economic growth and falling consumer prices. Germany’s inflation rate turned negative in January for the first time in more than five years, while the ECB is preparing to pump more cash into the region’s economy via a quantitative-easing program to fend off the risk of deflation.
“It doesn’t provide much in the way of reassurance in terms of the market’s take on the ECB’s ability to reflate the economy via its imminent foray into QE,” said Richard McGuire, head of European rates strategy at Rabobank International in London. “Japanification of Europe is quite a familiar theme. The market is of the view that the disinflationary forces currently gripping Europe are by no means transitory.”