Get 40% Off
⚠ Earnings Alert! Which stocks are poised to surge?
See the stocks on our ProPicks radar. These strategies gained 19.7% year-to-date.
Unlock full list

German Bund Yields Crash, ECB Blocked From Helping

Published 06/27/2016, 11:17 AM
Updated 07/09/2023, 06:31 AM

Brexit has crashed German bund yields. Current rules prevent the ECB from buying bonds that yield less than -0.40 percent.

An estimated 800 billion euros of German bonds are not eligible for the EBC's asset-purchase program.

Brexit made the number of German bunds ineligible for ECB QE much worse. Money from across Europe has raced into German bunds pushing the price up, and yields down.

When a bond has a negative yield, the bond investor has to pay to own the bond. Stupid, right? Who would buy a bond, and then have to pay for the privilege of holding it? The idea is that negative yields discourage money from flowing into defensive bonds and instead encourage money to flow into riskier offensive assets that benefit the economy.

The German 15-year bund yield did a gap down after Brexit and continues to fall closer to negative yield:

German Bund 15-Year Chart

Brexit pushed the 10-year German bund into negative yield:

German Bund 10-Year Chart

Brexit pushed the 9-year bund into negative yield:
German Bund 9-Year Chart

Brexit pushed the 8-year bund into negative yield:

German Bund 8-Year Chart

Brexit pushed the 7-year bund out of eligibility for ECB QE purchases:

German Bund 7-Year Chart

Brexit pushed the 6-year bund out of eligibility for ECB QE purchases:

German Bund 6-Year Chart

Jefferies International predicts the ECB could run out of German bonds to buy in its chosen 2- to 30-year bund purchase pool within three months.

Not only is the ECB buying German bunds, it is paying Germany the negative yield too. If more than half of German bunds become ineligible for ECB QE purchases, that's a lot of ECB money not going to Germany. My bet is that the ECB will change the -0.40 yield cap rule.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.