Bizarro Invasion! Denmark And German Sovereign Yields Negative (And 10Y German Yields BELOW The ECB Main Refinancing And Deposit Rate!)

The European Central Bank’s President, Mario Draghi, 8-year term is up in October … and  Christine Lagarde of the International Monetary Fund has been chosen to replace him. Will Lagarde continue Draghi’s policies (yes) or change course (no)?

But Europe has been invaded by the bizarro legion.

Case in point. Both Germany and Denmark have negative sovereign yields out to 20 years. Germany, which has issued longer maturity sovereign debt, has slightly positive yields beyond 20 years.


And the German 10-year Bund yield is now below the ECB Main Refinancing Rate, ECB Deposit rate and the European Financial Stability Facility (EFSF) rate. How bizarre is that?


Yes, the monetary Bizarro legion has invaded earth (or at least Japan and Europe).  And the US monetary policy has been bizarro since Alan Greenspan.




US Treasury And Swap Curves Remain Sagging, Europe Sagging Too (Except Italy)

Apparently, the sags are here to stay.

The US Treasury Actives curve (green) is downward sloping until 3 years, then upward sloping after 3 years. The US dollar swaps curve (blue) is downward sloping until 1 year, then double dips at 4 years before rising again. The overnight indexed swap rate (red) is downward sloping until 4 years then rises. This is called “the sag.”


But US markets are not the only one sagging. In Europe, the majors Germany (blue), France (green) and the UK (purple) sovereign curves are all sagging, with the exception of Italy (red).


(Bloomberg) — Italian bonds led a European rally as hints of fresh stimulus from policy makers outweighed the impact of easing global trade tensions.

The securities surged Monday to send benchmark yields below 2% for the first time since May 2018, while German bund yields hit a fresh record low. European Central Bank officials gave signals that action may be on its way in an effort to revive the region’s inflation, while investors in Italy are growing confident Rome will avoid punishment from the European Union over its budget.