dimanche 19 avril 2015
Strange Things Are Happening in European Bond Markets
Posted on 22:22 by nice news
Strange things are happening in the European fixed income markets these days as our friends at RenMac pointed out this week. I watch these indicators too, and my jaw is on the floor as I watch their QE program unfold.
For starters they are buying 260% of all net bond issuance with their program. That means they are buying up more than 2.5 times what they are going to issue (less what will mature). What will be left looks like the red line on this chart:
Having supply sucked out of the system like that has an obviously large impact on prices. The more buyers there are of anything, the higher the price goes (and in the case of bonds, the lower the yields go).
As of this week German government bond yields are negative all the way out to 9 years in maturity. So that means to park your money in Germany for the next 9 years, you have to pay THEM. That is so backwards I can’t even begin to think of all the unintended consequences this will bring about.
For starters they are buying 260% of all net bond issuance with their program. That means they are buying up more than 2.5 times what they are going to issue (less what will mature). What will be left looks like the red line on this chart:
Having supply sucked out of the system like that has an obviously large impact on prices. The more buyers there are of anything, the higher the price goes (and in the case of bonds, the lower the yields go).
As of this week German government bond yields are negative all the way out to 9 years in maturity. So that means to park your money in Germany for the next 9 years, you have to pay THEM. That is so backwards I can’t even begin to think of all the unintended consequences this will bring about.
Strange Things Are Happening in European Bond Markets
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