Friday, June 1, 2012

Today's Major Market Move: German 2 Year Bond Briefly Goes Negative

If anyone is still doubting whether or not the bulk of the world is in inflation or deflation, the fact that the yield on the 2 year German bond went negative briefly on Friday ought to convert any last remaining holdouts. Here's a chart of the yield on the 2 year going back one week:

Click here to go to the live chart.
Let's also take a look at the entire German Bund yield curve:

Click here to go to the live chart.

A few things jump out from the above chart:
  1. The curve is inverted (and has been for some time) with the 30 year below the 20 year
  2. Every single duration is now well under 2%. 1.67% for a 30 year bond? All we can say is "wow".
  3. Yields have recently nose-dived from what was already historically low levels.
We expect to see some kind of action from the world's central banks in the very near future. With both oil and interest rates dropping like rocks, the central bankers have plenty of cushion for providing liquidity. The long term impact of all this extra money remains to be seen, but with the house currently on fire we highly doubt that Bernanke and co. are worried about any water damage that might result from the drenching to put the flames out.

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