Bund futures lead bonds down as ECB hawks squawk
Real time bomb in bond markets is Europe’s negative interest rates, not Fed policy
Government bonds got hammered across developed markets as the hawks on the European Central Bank council called for an early end to quantitative easing.
Too much attention was devoted to the Federal Reserve’s metaphysical struggle with rising inflation that never arrived. The real bomb in the global bond market is negative interest rates across most of the European rate structure past the five-year maturity. The German 5-year Bund still yields negative 0.29 percent, and France is at negative 0.08%.
To get a positive yield investors have to buy Italian debt — and that’s exactly why the European Central Bank’s slippery chief Mario Draghi instituted negative yields in the first place. He wants Europe’s basket cases to have time to get their act together before rates rise. Meanwhile the Germans and Dutch are chafing at what their newspapers regularly call “confiscation” of savings.
The chorus of protest from northern Europeans led by Bundesbank president Jens Weidmann is getting louder. Watch out, bond investors: the Weidmann cometh.Source