If you think back to eight to ten years back, the European economy was in a massive blackhole - having to deal with the sovereign debt crisis, threats to the Eurozone breaking up, and weakening growth alongside rather depressed inflation pressures. The ECB had no room to wiggle with its easy monetary policy (negative rates) and we all were witnessing the Japanification of Europe.
German bond yields were in negative territory for the better part of the last decade and if not for the pandemic, any one person in the market would have laughed off the thought of yields rising back to 2008 levels. Yet, here we are today.
It's one of those things that you should never say never in markets, or at least something along those lines.
Amid the holiday period, yields are continuing to climb as bonds are being sold again after the more hawkish ECB narrative earlier this month. A 50 bps rate hike for the central bank's next meeting is also very much fully priced in - some 90% roughly.
It's all about the inflation story now for European policymakers, they can somewhat be thankful that got a sort of reset button to distract from their shortcomings and failings since the global financial crisis.
But knowing how people never change, it is only a matter of time before the region succumbs to the same kind of blunders in the past and we'll be talking about the same sort of incompetence once again.
For now, the inflation outlook will spare them the scrutiny but once the world starts to move to the next phase of the post-pandemic era, we'll see who manages best. And if history is any indication as was the case after the global financial crisis, euro area lawmakers and policymakers don't have the greatest of track records.
