If there is one bank that is more concerned than any other about global central bank unorthodoxy, it is Deutsche Bank which as we reported yesterday, saw its stock price drop to a record low yesterday. As such it is not surprising that in his overnight note, DB’s Jim Reid focuses on the “broken financial system” and highlights the one indicator that confirms just how broken the system is: the Bund Yield.
This is what he said:
The Moon landing, JFK’s assassination, John Lennon’s shooting, maybe even the Red Wedding episode from Game of Thrones. In years to come will they also be asking you where you were at the time you heard the news that 10 year Bund yields turned negative for the first time? For me it was in an airport in Vienna! Although there has been a creeping inevitability on this for several days now this landmark remains a truly remarkable event. If one wanted a simple indicator to reflect a broken financial system then this would be a strong candidate. In today’s PDF we show 10 year Bund yields back to the early 1800s to put this move in some perspective. It’s incredible when you think that the central bank responsible for the inflation rate in Germany has a target of (just below) 2% per year. Let us stress that until Governments/central banks change policy, yields are likely stay at ultra low levels due to secular stagnation type themes and the overwhelming amount of QE hoovering up bonds. However it still reflects a broken financial system.
Which is not to say that DB wants a return to normalcy. As we reported back in February, what DB wants is an end to NIRP and a return to more QE and, eventually, the start of helicopter money, both of which at least will not crush DB’s own stock price if only in the immediate future. Until then, expect laments such as this one to persist and get louder.
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