There isn’t a shortage of warning signs.
In the options market, the cost of bearish contracts on German bunds surged to the highest since October relative to bullish ones, data compiled by Bloomberg show. A measure of 30-day swings on bunds also jumped past the high in May, when the selloff sent 10-year yields soaring as high as 1.06 percent.
They were at 0.21 percent on Monday, after dropping as low as 0.1 percent last week. In April, yields reached a record-low 0.049 percent.
‘Prayer Mode’
With negative-yielding bonds, “you are are really in prayer mode for the opportunity to sell to essentially a bigger fool,” said Zane Brown, a fixed-income strategist at Lord Abbett & Co., which oversees about $125 billion. “Markets have a way of hoping for more than what is deemed by policy makers to be prudent. And we see that phenomenon again and again.”
Brown says he prefers the U.S. to Europe. Benchmark U.S. Treasuries yield 1.64 percentage points more than their German counterpart.
Yet, as more central banks experiment with negative-rate policies to revive their moribund economies, investors have become more willing to pay a fee to own sovereign debt. Just this month, Japan was paid to borrow almost $20 billion by selling 10-year bonds at negative yields for the first time.
And with benchmark Japanese yields at minus 0.035 percent, an increasing number of investors suggest German 10-year bunds can’t be far behind.
While figures last week suggested signs of life in euro-area employment, services and retail sales, ECB officials have thus far failed to spur any sort of meaningful improvement in the one number that really counts -- inflation.
Consumer prices in the 19-nation currency bloc fell in February at an annual rate of 0.2 percent -- the biggest setback in a year.