German Debt Yield Goes Below 1% - An Astonishing New Record
REUTERS/Tobias Schwarz
It's an astonishing change. Two decades ago, a German government would have been happy to issue debt with a 5% yield, and until the financial crisis they didn't fall below 3%. The only advanced economy to see yields like these in recent financial history is Japan.
This means Berlin is borrowing incredibly cheaply. So long as inflation averages above 0.93% for the next 10 years, investors are effectively paying the government to hold its debt. That's probably also why the IMF today specifically names Germany as one of the countries that could easily be spending more on infrastructure.
ECB
It's also partly a reflection of falling inflation expectations. At just 0.3%, Eurozone inflation is far below the ECB's 5-year target. As investors get increasingly less confident that the central bank will manage to raise inflation in the long-term, lower yields begin to look more attractive, because the value of the money they originally invested will be declining more slowly.
The spread between US and German yields is also widening, as this chart from a BAML research note shows:
BAML
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