On January 22, ECB president Mario Draghi is expected to announce a plan of action to stimulate Europe via a QE policy of purchasing government bonds. Details were supposed to be hush-hush but the options are out of the bag in bright daylight.
Reuters reports ECB is Considering Three Options according to a Dutch paper.
Every one of those options looks ridiculous. German bond yields are already negative out to 5 years and barely above zero out to 10 years.
Yield on the German 10-year bond is 0.454% while the 10-year French bond yield is 0.738% and the 10-year Spanish bond yield is 1.64%. For comparison purposes, the 10-year US treasury note yields 1.96%.
These bonds already are hugely overpriced given the risk of a messy eurozone breakup. Option three is the most ludicrous because the peripheral countries are already overloaded in their own bonds.
Race to Negative 10-Year Yields
In a previous post, I stated Japan leads Germany in race for a negative yield on 10-year bonds. However, I overlooked first-place Switzerland. Japan is actually in second place and Germany third.
Both Germany and Switzerland have negative yields all the way out to 5 years.
For further discussion and charts, please see In Race to Negative Rates on 10-Year Bonds, Switzerland Leads Japan.
As for ECB president Mario Draghi's plan to fix the eurozone via QE, I see eight major reasons, whatever he does won't work.
Eight Major Problems
