• 269 days Could Crypto Overtake Traditional Investment?
  • 274 days Americans Still Quitting Jobs At Record Pace
  • 276 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 279 days Is The Dollar Too Strong?
  • 280 days Big Tech Disappoints Investors on Earnings Calls
  • 280 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 282 days China Is Quietly Trying To Distance Itself From Russia
  • 282 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 286 days Crypto Investors Won Big In 2021
  • 287 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 287 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 290 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 290 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 293 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 294 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 294 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 296 days Are NFTs About To Take Over Gaming?
  • 297 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 300 days What’s Causing Inflation In The United States?
  • 301 days Intel Joins Russian Exodus as Chip Shortage Digs In
  1. Home
  2. Markets
  3. Other

As Draghi Hints at More QE, German Bond Yields Hit Record Low Negative Yields; Economic Madness

Quantitative easing in the eurozone to the tune of €1.1 trillion has not raised consumer price inflation as the ECB had expected.

But neither bureaucrats nor central planners ever evaluate the effectiveness of their programs. Rather, when something does not work, they do more of it, until it does work, with no regard for the economic bubbles or other negative consequences.

Those expecting more monetary madness were rewarded today when the ECB Opens the Door to December Stimulus as expected.

The European Central Bank signalled it would expand its €1.1tn quantitative easing programme in December and cut its deposit rate should the slowdown in emerging markets threaten the eurozone's economic recovery.

The euro plunged 1.67 per cent against the dollar to $1.116 after Mario Draghi, the ECB's president, said policymakers' measures would need to be "re-examined" in December.

He said the central bank stood ready to adjust the "size, composition and duration" of its QE package. At the moment, it is buying €60bn of mostly government bonds a month and has said it will continue to do so at least until September 2016.

Government bond yields, which move inversely to prices, fell across the region, with Italian and Spanish benchmark 10-year borrowing rates dropping to the lowest level since April and the shorter-term two-year German borrowing rate hitting a record low of minus 0.32 per cent.

As well as expanding the QE programme, the ECB could also break an earlier promise to leave interest rates unchanged and cut its deposit rate further into negative territory, a move which is likely to further weaken the euro if implemented.

The ECB president said cuts into negative territory by other central banks, such as the Swiss National Bank and Scandinavian authorities, had led the ECB to reassess where the lower boundary for interest rates lay.

"We've seen the experience of other central banks and now we're thinking about that," Mr Draghi said.

With that, let's take a look at some currency and interest rate reactions.


German 2-Year Bond Yield

German 2-Year Bond Yield


German 2-Year Bond Yield Weekly

German 2-Year Bond Yield


Italy 10-Year Bond Yield

Italy 10-Year Bond Yield


Spain 10-Year Bond Yield

Spain 10-Year Bond Yield


US 30-Year Bond Yield

US 30-Year Bond Yield


Euro/US Dollar

Euro/US Dollar

In Europe, there were large interest rates swings in nearly every county. In Germany the move was primarily in short-term durations. In the peripheral countries, the swings were in longer term durations.

In the US, treasury yields declined, but the move was muted.

In Forex, Draghi got an oversized move where he wanted as the Euro sank vs. the US dollar.

A strong US dollar has hurt US manufacturers so the Fed will likely not be pleased with this competitive currency debasement.


Economic Madness

Quite frankly it's nothing but economic madness to demand consumer price inflation.

Nonetheless, central banks are not only bound and determined to achieve inflation, but with methods that failed for decades in Japan and more recently in both Europe and the US.

My Challenge to Keynesians "Prove Rising Prices Provide an Overall Economic Benefit" is still unanswered.

 

Back to homepage

Leave a comment

Leave a comment