Central banks / bond markets

How low can Bund yields fall?

The 10-year Bund yield recently hit the headlines when it dropped -0.41% below the current key ECB interest rate, the deposit facility rate. So instead of parking the available liquidity at the ECB at -0.40% cheaper, some investors preferred to buy ten-year Bunds. ECB President Mario Draghi provided the impetus for the Bund Rallye, which led the yield of ten-year Bunds to a new all-time low of a good 20 bp below the old one. He said in his speech at the ECB Forum in Sintra on 18 June 2019 that further stimulus would be needed if economic conditions did not improve over the summer. Accordingly, the ongoing uncertainty about the EU budget dispute with Italy, Brexit or trade disputes constitutes in itself a materialisation of the risk factors. Since then, the yield on treasures has been 0.73% outside the previously valid range. The 15 bp decline in yields suggests…

Interest – how low can you go?

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…

The US Federal Reserve is determined to cut interest rates

Yesterday, Fed Chairman Jerome Powell, at a hearing before the House of Representatives Banking Committee, gave a relatively clear signal that the Fed intends to cut interest rates. Three rate cuts now appear possible and probable over the next twelve months; the first cut could take place as early as July. The Federal Reserve’s monetary policy minutes published yesterday evening indicate that the June Council’s monetary authorities generally assumed that economic activity would continue to grow at a moderate pace. In this context, the Fed representatives expect a sustained strong development in the labour market and an inflation rate in the range of the target value. However, according to the assessment of numerous Council members, the probability of a less favourable development had increased. Among other things, risks would emanate from the still unresolved trade dispute. From these different comments and assessments it can be deduced that the neutral key…

The politicisation of central banks

Growing hope for even cheaper money and a further decline in central bank interest rates is apparent in the capital market. It has been evident again for some time now that bond yields are falling and risk-bearing assets, such as equities and corporate bonds, are increasing. With the appointment of Christine Lagarde as successor to ECB president Mario Draghi, we can expect a loose monetary policy to continue even after the Draghi era comes to an end. With Ms Lagarde, a lawyer is now taking the helm at the ECB, as is already the case with the US Federal Reserve. The politicisation of central banks is therefore being consistently pursued. This development does not come as any great surprise: thanks to the central banks’ willingness to act even in the extreme areas of monetary policy, central bank policy has become very relevant for the governments. It remains to been seen…

President Erdogan – always good for negative surprises

In a completely unexpected move, Turkish President Erdogan has discharged Murat Cetinkaya from the office of governor of the central bank. His deputy Murat Uysal is now expected to assume the position in the future. The background to the decision is the dispute about the adequate orientation of the central bank’s monetary policy, which Erdogan views as being much too restrictive. This opinion is based on the president’s confused economic view that high key interest rates lead to high inflation. According to media reports, the president is said to have clarified that he will not accept any other opinion from either the ranks of the government or of the central bank. Erdogan appears to have very successfully suppressed the fact that Cetinkaya helped to significantly ease the situation with a marked increase in key interest rates to 24% in September, thus stabilising the lira with the effect that price pressure…

Bank of Japan Tankan index hits three-year low

The Bank of Japan’s quarterly sentiment index has weakened again recently, falling by 5 points for large and export-orientated industrial companies in the second quarter, and reaching a three-year low of only +7 points. This important index, with readings ranging from -100 to +100, is now close to showing a balance between optimistic and pessimistic responses from the companies surveyed. Conversely, assessments from large companies in the services sector which are geared more to the domestic market have improved slightly recently, up from 21 to 23 points. The Tankan has recently slipped down from 12 to 10 points for all companies (all sectors and size categories). Sentiment at large Japanese manufacturing companies consequently showed an above-average deterioration in the second quarter. Concerns about the current and future business climate are also understandable given the uncertainty and the real impact of the US/China trade dispute. Some good news did nevertheless emerge…

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