A few days ago, the yield on 10-year German government bonds fell below the -0.4 percent mark. The European Central Bank has set the deposit rate at -0.4 per cent, i.e. the rate at which banks can park their excess liquidity at the ECB. According to this report, investors seemed at least temporarily more attractive to invest their money in long-dated German government bonds, even though they would have to pay an additional penalty interest rate for this, even compared to the safe, flexible and short-term investment at the ECB.
Although the Bund yield has recovered somewhat in recent days, the question arises after this experience: How low can yields on safe government bonds still fall? We come to the conclusion that there is still a lot of „air down“ when it comes to returns. If the smouldering economic and political risks such as the „hard“ Brexit and a further escalation in the trade dispute materialize and the ECB revives its bond purchase program, the Bund yield would probably go even further down.
While the more expansive monetary policy is pushing interest rates down again, this is giving the stock markets new impetus, even if the economic outlook has worsened. Profiteers are not least passively managed funds that have increasingly gained market share in recent years. This may also entail new risks to financial stability.