German 10 Year Yields Below Japanese Debt

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.”

via Bloomberg

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Alfonso Esparza

Alfonso Esparza

Senior Currency Analyst at Market Pulse
Alfonso Esparza specializes in macro forex strategies for North American and major currency pairs. Upon joining OANDA in 2007, Alfonso Esparza established the MarketPulseFX blog and he has since written extensively about central banks and global economic and political trends. Alfonso has also worked as a professional currency trader focused on North America and emerging markets. He has been published by The MarketWatch, Reuters, the Wall Street Journal and The Globe and Mail, and he also appears regularly as a guest commentator on networks including Bloomberg and BNN. He holds a finance degree from the Monterrey Institute of Technology and Higher Education (ITESM) and an MBA with a specialization on financial engineering and marketing from the University of Toronto.
Alfonso Esparza