The 'Japanification' of German bond yields looks to be over before it really began

Author: Justin Low | Category: News

German 10-year bond yields rise to four-week highs near 0.10%

German 10-year bond yields
Over the past five years, the idea of 'Japanification' among European bonds came about in 2015 and 2016 but on both occasions, they never really stayed the course. In 2015, bund yields didn't even manage to hit 0% while in 2016, it did fall to negative territory but the move was very much contained and short-lived.

This time around, we're seeing more of the same story. A lot of emphasis has been put on falling German bond yields towards the end of last year and as it fell to negative territory last month. But as mentioned at the time, 'Japanification' tends to have a counter-effect to German yields and that looks to be the case this time around as well.

Of course, it's a bit premature to call for the end of negative yields in Europe considering that the rebound today is largely reliant on Chinese data providing a relief to market participants, easing fears on global growth. But if the US and China are able to strike a trade deal/agreement, I reckon there's still room for yields to creep higher before the reality of global economic headwinds start settling once again in 2H 2019.

When that happens, expect more talks of 'Japanification' once again.

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