ECB QE in frame as Bund yield falls below 1%
As yield on the German 10-year Bund fell below 1% in the wake of fears of eurozone economic stagnation, Bill Street, head of Investments EMEA at SSgA, said that investors should expect the European Central Bank to put its version of Quantitative Easing back on the agenda.
“Two days of painful data in Europe against a backdrop of Russian tensions have driven up the price of 10 year German Bunds, pushing yields to historic lows of below 1%. The eurozone is now on the brink of Japanese style stagnation – where a lack of inflation and growth has gripped the economy for a decade.”
“Weaker than expected GDP numbers, together with predictable but poor inflation data has triggered this sudden flight to safety. Inflation across wider Europe decreased last month with CPI in the euro-area falling by 0.7% and only rising by 0.4% over the year since July 2013. Poor growth and a deepening deflationary outlook has resurfaced concerns about the long term debt-sustainability of the Eurozone periphery. This is putting QE back at the forefront of people’s minds with investors questioning whether the ECB has the tools, or intent, to do ‘whatever it takes’.”
The development is likely to fan interest in government debt issued by countries seen as safehavens; as of yesterday the yield on Swiss government debt was 0.45%, and on Dutch government debt 1.2%. Swedish government debt saw its yield fall 0.38% yesterday to 1.6%.