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German Bund Yields Drop Below Japan for First Time Since 2016

German Bund Yields Drop Below Japan for First Time Since 2016

(Bloomberg) -- Germany’s bond market just flashed another warning sign that Europe’s biggest economy is going the way of Japan.

Ten-year bond yields dropped below those of the Asian nation’s for the first time since 2016 after European Central Bank President Mario Draghi said risks for the euro area remain tilted to the downside. A wave of risk-off sentiment is spreading through global markets, adding to a rally in German bonds this year amid a deteriorating outlook for the euro area.

German Bund Yields Drop Below Japan for First Time Since 2016

The slide in bund yields has led to fears of a so-called Japanification of the euro area, where inflation, growth and yields remain permanently low. The last time they were this low, in 2016, the ECB was pumping money into the region’s economy via bond purchases.

“The bund curve is becoming ‘Japanified’ as the market prices out the chance of future ECB hikes,” said Chris Attfield, a fixed-income strategist at HSBC Holdings Plc. “There’s a long way to go before we’re as flat as JGBs, so we think there’s still value if the ECB fails to lift off.”

German 10-year yields dropped seven basis points to minus 0.086 percent on Wednesday, the lowest since October 2016, having slid below zero percent last week. Those on their Japanese peers closed at minus 0.067 percent.

A gauge of euro-area inflation expectations also fell to the lowest since 2016 on Wednesday.

To contact the reporter on this story: John Ainger in London at jainger@bloomberg.net

To contact the editors responsible for this story: Ven Ram at vram1@bloomberg.net, Neil Chatterjee, Scott Hamilton

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