September 15, 2022
  • September 15, 2022

German 10-year bond yield is trading in positive territory

By on January 19, 2022 0

Outgoing Finance Minister and new German Minister Chancellor Olaf Scholz delivers a speech during the handover ceremony with his successor at the German Federal Ministry of Finance in Berlin, Germany, December 9, 2021.

Tobie Schwarz | Reuters

Borrowing costs for the German government continued their ascent on Wednesday, with the benchmark 10-year Bund yield trading in positive territory for the first time in nearly three years.

May 2019 was the last time German 10-year yields were above zero, when the European Central Bank’s accommodative policy began to push interest rates down. Negative returns meant that investors were effectively paying the German government to lend it money.

The ECB is currently behind on its normalization trajectory, compared to the Federal Reserve and the Bank of England, but soaring inflation and broader movements in the global bond market have now helped push yields higher. above zero.

Eurozone inflation hit a new high in December, raising more questions about the ECB’s monetary policy. The central bank said last month it would scale back its monthly asset purchases, but pledged to continue its unprecedented level of stimulus in 2022.

Central bank policy in times of financial stress typically focuses on the bond market. Central banks are buying up sovereign bonds, reducing their yields, which then lowers the government’s cost of borrowing and also lowers interest rates for all sorts of loans and mortgages.

But the rebound from the coronavirus pandemic has seen consumer prices soar under this easy policy. And now central banks are looking to roll back their stimulus in an attempt to calm inflation. The Bank of England has already raised rates by 15 basis points.

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