The negative rate phenomenon is putting enormous strain on forex crosses and generally scaring the shit out of people. Today’s 2bps bump in German bunds is a very good development. Moreover, it seems the ECB will be more focused on both Italian and Spanish debt, going forward, which is the reason why we’re seeing the spreads between periphery nations tighten v Germany.
QE has distorted the bond market with reckless abandon. The result of negative rates have left both European and Japanese markets in tatters, greatly underperforming US indices.
Year to date, Germany is down 12% and Japan is off by 20%, while we’re up 4%. I cannot remember the last time US markets have diverged to such a degree. There can be only one explanation: negative rates.
Ergo, the quicker German bunds can crawl out from the negative position it’s in the better they’ll be.
The DAX is higher by 0.55%.
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